Loan and Investment by Company Under section 186 of the Companies Act, 2013

1- Notified Section
This section is not covered undernotification which was issued on 12th September, 2013, Hence this
section is not applicable at the time of issue of this Article.
2- Applicability of Section
A) The Sub Section (1) of Section 186 is applicable on all Companies either private Companies
orpublic Companies.
B) Considering the Sub Section (11) of Section 186 of the Act, whole section except sub section (1) shall
be applicable on Private Company as well as Public company also.
3- Non Applicability of Section
The Section 186 (Except Section (186 (1)) of the Companies Act, 2013 does not apply in following:-
1- Banking Company, Insurance Company, Housing Finance Company etc
2-Any company whose main business of acquisition of shares or securities etc
The intention of sub section 11 is clear that if the companies are involved in the area of banking,
insurance, funding, facilitating of loan etc, In that case, this section cannot be applicable.
4- Meaning of layers
(d) layer in relation to a holding company means its subsidiary or subsidiaries; (Explanation (d) of
Section 2 (87))
5- Investment (u/s 186 (1))
It means a company may not make investment its money more than Two Layer. The limit has been fixed.
It is showing a good sign for transparency.
6- Investment not affects (Proviso of section 186(1))
The provisions of Section 186 (1) shall not be make compulsion on following cases:-
1- A company acquires any company which is incorporated outside India. Such company has Investment
Subsidiary beyond Two layers as per the law of host country.
2- A subsidiary company from having any investment subsidiary for the purpose of meeting of the
requirement under any law framed under any law for the time being in force.
7- Limits for Investment and Guarantee (u/s 186 (2) )
The Limit is fixed in the Section 186 (2), that 60% of Paid up capital + Free Reserve
+ SecurityPremium or 100% of Free Reserve + Security Premium (whichever is More). In this
Section, the company cannot give loan, guarantee or provide any security or acquisition as per fixed limit.
This sub section restricts within limit.
8- Approvals for Investment and Guarantee etc (u/s 186 (3))
The Sub section (2) of Section 186 makes restriction, but Section 186(3), gives power to the company,
that it may give loan, guarantee or provide any security or acquisition beyond the limit but before taking
prior approval from Shareholder in the General Meeting.
It means once we need to take approval from Shareholder in the General Meeting, thereafter we may
make investment beyond the limit.
9- Disclosures (u/s 186 (4))
It is duty of the Company to disclose in the Financial Statement the full particulars of the loan
given,security provided and guarantee given. The Company shall also disclose in its Report about its
utilization.
10- Approvals of Board and Public Financial Institutional u/s 186 (5))
The company must take 100% consent from Board to give loan and guarantee and providedsecurity. In
case of Company has already taken loan etc from any financial institutions, banks etc. Then, it is
mandatory to take prior approval also from public Financial Institution, banks etc.
The approval from Public Financial Institution shall not be required where the company has not been
make default to pay interest and comply the limits and provisions of section (186 (2))
10- Companies Registered under SEBI u/s 186 (6))
Those companies or prescribed companies which are registered under SEBI can take interoperate loans or
deposited exceeding the prescribed limit.
The intention of government is clear, if the company is registered under SEBI, this section is not
applicable for the part of limit. But, simultaneously, it is prescribed a condition in Section i.e.:-
At the end of the Financial Year, such companies shall furnish details of loans or deposit in its Financial
Statement.
So, the company can utilize the benefit mentioning the information and details in the Financial
Statement of the Company.
11- Register (u/s 186 (9 and 10))
The Company shall must maintain a Register under this section and it shall be kept at the Registered
office of the Company which shall be prescribed.
This register shall be opened for inspection and in case of any member, if demand its extract, the
company shall provide them as per prescribed fee.
12- Penalty
For Company:-
If company contravenes this provision, the company shall be penalized with fine which shall not be less
than Rs. 25000/- but which may extend to Rs. 5 lacs.
For Officers:-
Every officer of the Company who is default shall be punishable with imprisonment for a term which may
extend to Two Years and find which shall not be less than Rs. 25000/- but which may extend to Rs. 5
lacs.

Full Text of the Section 186 of the Companies Act, 2013 is as follows :-
Loan and investment by company- Section 186
186 . (1) Without prejudice to the provisions contained in this Act, a company shall unless otherwise
prescribed, make investment through not more than two layers of investment companies:
Provided that the provisions of this sub-section shall not affect,
(i) a company from acquiring any other company incorporated in a country outside India if such other
company has investment subsidiaries beyond two layers as per the laws of such country;
(ii) a subsidiary company from having any investment subsidiary for the purposes of meeting the
requirements under any law or under any rule or regulation framed under any law for the time being in
force.
(2) No company shall directly or indirectly
(a) give any loan to any person or other body corporate;
(b) give any guarantee or provide security in connection with a loan to any other body corporate or
person; and
(c) acquire by way of subscription, purchase or otherwise, the securities of any other body corporate,
exceeding sixty per cent of its paid-up share capital, free reserves and securities premium account or one
hundred per cent of its free reserves and securities premium account, whichever is more.
(3) Where the giving of any loan or guarantee or providing any security or the acquisition under sub-
section (2) exceeds the limits specified in that sub-section, prior approval by means of a special resolution
passed at a general meeting shall be necessary.
(4) The company shall disclose to the members in the financial statement the full particulars of the loans
given, investment made or guarantee given or security provided and the purpose for which the loan or
guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security.
(5) No investment shall be made or loan or guarantee or security given by the company unless the
resolution sanctioning it is passed at a meeting of the Board with the consent of all the directors present at
the meeting and the prior approval of the public financial institution concerned where any term loan is
subsisting, is obtained:
Provided that prior approval of a public financial institution shall not be required where the aggregate of
the loans and investments so far made, the amount for which guarantee orsecurity so far provided to or in
all other bodies corporate, along with the investments, loans, guarantee or security proposed to be made
or given does not exceed the limit as specified in sub-section (2), and there is no default in repayment of
loan instalments or payment of interest thereon as per the terms and conditions of such loan to
the publicfinancial institution.
(6) No company, which is registered under section 12 of the Securities and Exchange Board of India Act,
1992 (15 of 1992) and covered under such class or classes of companies as may be prescribed, shall take
inter-corporate loan or deposits exceeding the prescribed limit and such company shall furnish in its
financial statement the details of the loan or deposits.
(7) No loan shall be given under this section at a rate of interest lower than the prevailing yield of one
year, three year, five year or ten year Government Security closest to the tenor of the loan.
(8) No company which is in default in the repayment of any deposits accepted before or after the
commencement of this Act or in payment of interest thereon, shall give any loan or give any guarantee or
provide any security or make an acquisition till such default is subsisting.
(9) Every company giving loan or giving a guarantee or providing security or making an acquisition under
this section shall keep a register which shall contain such particulars and shall be maintained in such
manner as may be prescribed.
(10) The register referred to in sub-section (9) shall be kept at the registered office of the company and
(a) shall be open to inspection at such office; and
(b) extracts may be taken therefrom by any member, and copies thereof may be furnished to any member
of the company on payment of such fees as may be prescribed.
(11) Nothing contained in this section, except sub-section (1), shall apply
(a) to a loan made, guarantee given or security provided by a banking company or an insurance company
or a housing finance company in the ordinary course of its business or a company engaged in the business
of financing of companies or of providing infrastructural facilities;
(b) to any acquisition
(i) made by a non-banking financial company registered under Chapter IIIB of the Reserve Bank of India
Act, 1934 (2 of 1934) and whose principal business is acquisition of securities:
Provided that exemption to non-banking financial company shall be in respect of its investment and
lending activities;
(ii) made by a company whose principal business is the acquisition of securities;
(iii) of shares allotted in pursuance of clause (a) of sub-section (1) of section 62.
(12) The Central Government may make rules for the purposes of this section.
(13) If a company contravenes the provisions of this section, the company shall be punishable with fine
which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and
every officer of the company who is in default shall be punishable with imprisonment for a term which
may extend to two years and with fine which shall not be less than twenty-five thousand rupees but which
may extend to one lakh rupees.
Explanation.For the purposes of this section,
(a) the expression investment company means a company whose principal business is the acquisition of
shares, debentures or other securities;
(b) the expression infrastructure facilities means the facilities specified in Schedule VI.