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INTER-CORPORATE
LOANS & INVESTMENTSUNDER COMPANIES ACT, 2013
Presented By:-
Deepak Ahuja
Image source : integritycapital.org
Section 186 read with Rules 11 to 13 of Companies (Meeting of Board and its Powers) Rules, 2014
Investment through Investment Companies Section 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
at times, Section 185 may prevail over this subsection
i.e. in a chain.
"layer" in relation to a holding company means its subsidiary
or subsidiaries
"investment company" means a company whose principal
business is the acquisition of shares, debentures or other
securities
Exemptions to section 186(1) Proviso to Section 186(1)
A company to acquire any other company
incorporated in another country
If such other company has investment subsidiaries
beyond two layers as per the laws of such country
A subsidiary company to have any
investment subsidiary to comply with the
requirements of any law or rule or
regulation framed under any other law
for time being in force
(i) (ii)
No such law
exists as of today
Restriction on making inter-corporate loans
A company shall not, directly or indirectly – exceeding the Ceiling Limit
Section 186(2)
Section 186(8) : A company in default of repayment of deposits or interest thereon, cannot make above transactions, till such default is subsisting.
Amounts Involved i.e. (Proposed Amounts + Existing Amounts) ≯ Ceiling Limit
(a) give any Loan (b) give any Guarantee
or provide Security in
connection with a loan
(c) acquire by way of
subscription, purchase or
otherwise, the Securities
Ceiling limit
Whichever is higher
60%
Paid up Share Capital
+ Free Reserves
+ Securities Premium Account
100%
Free Reserves
+ Securities Premium Accountor
“Free Reserves" means such reserves which are available for distribution as dividend..
Following shall not be treated as free reserves:
(i) Reserves representing unrealized gains, notional gains or revaluation of assets
(ii) Specific Reserves
Section 186(2)
Clarification in regards to loans & advances to employees
MCA General Circular No. 04/2015 Dated: 10/03/2015
Loans
and/or
Advances
Not governed by
requirements of
Section 186
If such loans/advances to employees are in accordance with
conditions of service applicable to employees
remuneration policy
Prior Approvals
Always
Consent of all the directors present in the meeting
Board of Directors
Amounts involved (Present + Proposed)
> Ceiling Limit
Specify amount up to which BOD is authorized
Special Resolution
Term Loan is subsisting
Not required if
• Amounts involved ≤ Ceiling Limit
• No default in repayment
Public Financial
Institutions
Section 186(5) Section 186(5)Section 186(3)
Rule 13
“Public Financial Institution" means LIC of India, Infrastructure Development Finance Co Ltd, Unit Trust of India, Others notified by CG.
Exemption from Section 186(3) Rule 11(1)
Provided to Wholly owned Subsidiary Joint Venture
In case of
• Loan given
• Guarantee given
• Security has been provided
By Company to its wholly owned Subsidiary.
• Acquisition
(by way of subscription, purchase or otherwise of, the securities)
by Holding company of its wholly owned subsidiary
• Loan given
• Guarantee given
• Security has been provided
By Company to its Joint Venture Company
Rate of Interest
1
3 3
5 5 5 5
10 10 10 10 10
1.00 2.00 3.00 4.00 5.00 6.00 7.00 7.50 8.00 9.00 10.00 11.00
Tenor of Loan (Years)
_________
Term of Government
Securities to consider
for effective Yield
Rate of Interest not to be
lower than effective Yield
MCA General Circular No. 04/2015 Dated: 10/03/2015 Effective yield of Tax Free Bonds not to be considered
Section 186(7)
Disclosure in Financial Statements
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 above are proposed to be utilized by the recipient
Section 186(4)
Restriction on taking Inter-Corporate Loans/Advances
Companies registered under
Section 12 of Securities and Exchange
Board of India (SEBI) Act, 1992
Such class or classes of companies
as may be prescribed by CG in
consultation with SEBI
or
Section 186(6) Rule 11(3)
+ Make disclosure of such loans/deposit in financial statements pursuant to section 186(4)
shall take inter-corporate loan or deposits
exceeding the prescribed limit
shall take inter-corporate loan or deposits
exceeding the limits prescribed regulations applicable
Maintenance of Register Section 186(9) & 186(10)
Rule 12
Register of Loan, Guarantee, Security or Acquisition Form MBP2
• To be maintained at Registered Office
• In manual or e-Mode
• In custody of Company Secretary
• Transactions to be entered chronologically
• Within 7 days of transaction
• Authenticated by Company Secretary
To be open for inspection by Shareholders
Extraction by Shareholders
On payment of fees prescribed by AOA ≤ Rs. 10 per page
Exemption from Section 186(2) to 186(10)
Exemption
against
• Loan made,
• Guarantee given
• Security provided
• Acquisition
Exemption
to
In the ordinary course of its business
1. banking company
2. insurance company
3. housing finance company.
Companies engaged in the business of
1. financing of companies
2. providing infrastructural facilities
1. Non-Banking Financial Company
(having principle business of acquisition of securities in respect of its investments)
2. A company whose principle business is
acquisition of securities
3. Through Right Issue u/s 62(1)(a)
4. In ordinary course of business by
Banking Company, Insurance Company and Housing
Finance Company
Section 186(11)
Non-Applicability of Section 186
MCA Exemption Notification Dated: 05/06/2015
Section 186 shall not be applicable to following Government Companies
a) Engaged in Defence Production b) Unlisted Companies
if prior approval is obtained from CG/SG,
as the case may be, for
i. making any Loan or
ii. giving any Guarantee or
iii. providing any Security
iv. making any Investment
under this section
Penalty Section 186(12)
In case of
ContraventionCompany Officers of Company in default
Fine (in Rupees) 25,000 ≤ Fine ≤ 5,00,000 25,000 ≤ Fine ≤ 1,00,000
and
Imprisonment Term ≤ 2 Years
PRESENTED BY:
DEEPAK [email protected]