Section 186. Loan and investment by company
(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; or
(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; or
(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.
Explanation.—For the purposes of this sub-section, the word “person” does not include any individual who is in the employment of the company.
(3) Where the aggregate of the loans and investment so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate along with the investment, loan, guarantee or security proposed to be made or given by the Board, exceed the limits specified under sub-section (2), no investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorised by a special resolution passed in a general meeting:
Provided that where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company, the requirement of this sub-section shall not apply:
Provided further that the company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided under sub-section (4).
(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, where any term loan is subsisting, the prior approval of the public financial institution concerned is obtained:
Provided that prior approval of a public financial institution shall not be required where the aggregate of loans, investments, guarantees or securities proposed to be made does not exceed the prescribed limit or where the company is in default in repayment of a term loan.
(6) No loan shall be given under this section at a rate of interest lower than the prevailing yield of the Government Security closest to the tenor of the loan.
(7) No loan, investment or guarantee or security shall be made or given by a company in respect of any other body corporate if the company is in default in complying with the provisions relating to deposits.
(8) Every company giving a loan or giving a guarantee or providing security or making an acquisition under this section shall keep a register containing such particulars as may be prescribed and the register shall be kept at the registered office and shall be open to inspection by any member.
(9) No investment shall be made by a company except in securities registered in the company’s name.
(10) The Central Government may make rules as to the manner in which investments, loans, guarantees and securities shall be made or given under this section.
(11) Nothing contained in this section, except sub-section (1), shall apply to any loan made, guarantee given or security provided by a banking company, insurance company, housing finance company in the ordinary course of its business or a company engaged in the business of financing of companies or acquisition of securities.
(12) The Central Government may prescribe the manner in which the register required under sub-section (8) shall be kept and the particulars to be entered therein.
(13) If a company contravenes any provision of this section, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but may extend to five lakh rupees, and every officer in default shall be punishable with imprisonment which may extend to two years and with fine which shall not be less than twenty-five thousand rupees but may extend to one lakh rupees.
