{"id":3216,"date":"2019-12-21T14:27:01","date_gmt":"2019-12-21T08:57:01","guid":{"rendered":"https:\/\/aktassociates.com\/blog\/?p=3216"},"modified":"2019-12-21T14:27:01","modified_gmt":"2019-12-21T08:57:01","slug":"loans-under-section-186","status":"publish","type":"post","link":"https:\/\/aktassociates.com\/blog\/loans-under-section-186\/","title":{"rendered":"Intercorporate Loans Under Section 186"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">There are many instances where a company is making its regular transactions but still somehow got stuck in non-compliances of any laws. This is most common when the company has made investments or making loans or buying shares or any other securities. So, if your company is giving a loan or guarantees or thinking about the acquisition of shares or other securities, then you should first read this. Section 186 of the companies act, 2013 explain all the provisions relating to investments\/securities\/loan\/guarantee.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-3222\" src=\"https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/12\/Intercorporate-loans-under-section-186-2-1.png\" alt=\"Intercorporate loans under section 186\" width=\"700\" height=\"400\" srcset=\"https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/12\/Intercorporate-loans-under-section-186-2-1.png 700w, https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/12\/Intercorporate-loans-under-section-186-2-1-300x171.png 300w, https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/12\/Intercorporate-loans-under-section-186-2-1-20x11.png 20w\" sizes=\"(max-width: 700px) 100vw, 700px\" \/><\/p>\n<p><b>Applicability<\/b><span style=\"font-weight: 400;\">: <\/span><\/p>\n<p><span style=\"font-weight: 400;\">But first, see whether this section is even applicable to you. Companies act, 2013 has given many exemptions to the <a href=\"https:\/\/aktassociates.com\/blog\/private-limited-company-registration\/\">private company<\/a> from compliances. However, this section does not include such an exemption. In simple words, section 186 is applicable to both kinds of companies i.e. private companies as well as private companies.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Now we will proceed with each subsection<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Section 186(1): It states that the company cannot make investments in more than 2 layers of the investment companies i.e. a company whose main business is of the acquisition of shares, debentures or other securities.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Although, there are some exemptions has been provided in this subsection which are:<\/span><\/p>\n<p><b>Acquisition of any Company through investment incorporated outside India<\/b><span style=\"font-weight: 400;\">:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">If such other company, which has incorporated outside India,\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Has already made the investment by making its subsidiary company in more than 2 companies as per the laws of such country<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Then also, your company shall be eligible for making the investments in such other company, which has incorporated outside India.<\/span><\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-3218\" src=\"https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/12\/Company.png\" alt=\"Company\" width=\"700\" height=\"200\" srcset=\"https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/12\/Company.png 700w, https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/12\/Company-300x86.png 300w, https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/12\/Company-20x6.png 20w\" sizes=\"(max-width: 700px) 100vw, 700px\" \/><\/p>\n<p><b>The subsidiary company from having any investment subsidiary:<\/b><\/p>\n<p><span style=\"font-weight: 400;\">A subsidiary company can make an investment in its subsidiary for the purposes of complying with the requirement under any law framed for the time being in force.<\/span><\/p>\n<h3><b>Now, we have come to the most important part of this section i.e. Section 186(2)\u00a0<\/b><\/h3>\n<p><b>Limits for Loans\/Investment\/Guarantee\/Security [Section 186 (2)]<\/b><\/p>\n<p><span style=\"font-weight: 400;\">As per the provisions of the subsection of 2 of Section 186 of the Companies Act, 2013, Company shall not directly or indirectly<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Give any loan to any person or any body corporate,<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Give any guarantee or provide security to any other body corporate or person and<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Acquisition of the securities by way of subscription, purchase or otherwise of\u00a0 any body corporate exceeding\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">60% of its paid-up capital + free reserves + securities premium account\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Or\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">100% of its free reserves + securities premium account,\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Whichever is more<\/span><\/p>\n<p><b>Section 183(3): Member\u2019s Approval\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">In the above, we have discussed the limit within which the company can give a loan, guarantee, provide security and make investments. Now we will discuss the exceptions given in this subsection from these limits.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As per Section 186(3), Company may have the power to give a loan, guarantee, security, investment or acquisition beyond the limit when it takes the prior approval of members in a special resolution passed at the general meeting.<\/span><\/p>\n<p><b>Section 186(4): Disclosure of Particulars of Loan, Guarantee, Security, And Investment\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Section 186 (4) of the Act provides that it\u2019s the obligation for the company to disclose the following details in the financial statement:-<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Details of the loan, guarantee, acquisition, security, and investment made by the company<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The purpose for which such loan, guarantee, security, and investment has been made<\/span><\/li>\n<\/ul>\n<p><b>Section 185(5): Approval of Board and Public Financial Institutions<\/b><\/p>\n<p><span style=\"font-weight: 400;\">As per this section, before making any investment, giving loans and guarantee and providing security, every Company would be required to take the consent of all the directors present at the board meeting.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Where the company has already taken the loan from any Public Financial Institutions (hereinafter PFIs), then it is compulsory for such a company to take prior approval from such PFIs before making any investment, giving loans and guarantee and providing security.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Although, the above provisions are not required to be complied by the company i.e. <\/span>prior approval of PFIs would not be required <span style=\"font-weight: 400;\">where the aggregate of loan, investment, guarantee, and security proposed is within the <\/span>limits as mentioned in the sub Section 2 of section 186<\/p>\n<p><span style=\"font-weight: 400;\">And\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Where the company has not made any default in repayment of such loan installments or interest thereon to the PFIs.<\/span><\/p>\n<p><a href=\"https:\/\/aktassociates.com\/start-a-business\/private-limited-company-registration\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-2057\" src=\"https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/09\/Register-Your-company.png\" alt=\"company registration\" width=\"700\" height=\"150\" srcset=\"https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/09\/Register-Your-company.png 700w, https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/09\/Register-Your-company-300x64.png 300w, https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/09\/Register-Your-company-20x4.png 20w\" sizes=\"(max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><b>Section 186(6): Provisions for the Companies which are registered under Securities Exchange Board Of India\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">As per subsection 6 of section 186 of the company Act, 2013, There is an exemption from subsection 2 of section 186, given to those companies which are registered under Section 12 of SEBI Act, 1992 and covered under such class or class of companies which may be notified by the Central Government in consultation with the SEBI Board\/ In simple words, these companies can take inter-corporate loans or deposits exceeding the prescribed limit but they have to furnish the details of loans or deposit in their financial statements.<\/span><\/p>\n<p><b>Section 186(6): Rate of Interest Section\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">As per this subsection, the company cannot give a loan at a rate of interest less than the rate prevailing yield of 1 year, 3 years, 5 years, or 10 years Government Security closest to the tenor of the loan. Although, the said section does not apply to <a href=\"https:\/\/aktassociates.com\/blog\/section-8-company-registration-procedure\/\">Section 8 Company.<\/a><\/span><\/p>\n<p><b>Section 186(8): Defaulter Company\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Under the provision of Sections 186(8), any company which has made a default in the repayment of any deposit accepted before or after the commencement of this Act or in payment of interest thereon, such company shall not give any loan or give any guarantee or provide any security or make an acquisition till such default is continuing.<\/span><\/p>\n<p><b>Section 186(9): Loan Register Section\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Section 186 (9) of the Act states that it compulsory for the company to keep a register in form MBP-2 which contains particulars of loans, guarantee, security or investment of the Company as prescribed under this Act.<\/span><\/p>\n<p><b>Section 186(10): Place Of Register Section\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The registered as specified in Section 186(9) shall be required to maintain at the registered address of the company.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It should be open for the inspection at such office and;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Extracts of such register may be taken therefrom by any member of the company by paying the cost of such copies<\/span><\/p>\n<p><b>Section 186(11): Non-Applicability of Section\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Now we will discuss those companies on which this section shall not be applicable:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">banking company, or\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">an insurance company, or\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">a housing finance company in the ordinary course of its business, or\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">a company established with the object of providing financing industrial enterprises, or<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">\u00a0infrastructure company;<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">which has made any investment in \u2013 (a) made by an investment company, (b) made in the shares allotted in pursuance of clause (a) of subsection (1) of section 62 of the Act or in shares allotted in pursuance of rights issues made by a body corporate;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Or<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Made, in respect of investment or lending activities, by a non-banking financial company registered under Chapter III B of the Reserve Bank of India Act, 1934 and whose principal business is the acquisition of securities<\/span><\/p>\n<h3><b>Penalty for Contravention of [Section 186(13)]<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">If any person or any other bode corporate does not comply with the provisions of this Section,<\/span><\/p>\n<p><b>For Company<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Every company shall be liable for the penalty which shall be not less than 25,000\/- rupee but may extend to 5,00,000\/- rupees.<\/span><\/p>\n<p><b>For officer<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Every officer who has made default shall be punishable with imprisonment for a period which may extend to 2 years and fine which shall be not less than 25,000\/- rupees, which may extend to 1,00,000\/- rupees.<\/span><\/p>\n<h3><strong>Summary:<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">I hope by reading this article, you will get your all answers related to section 186. If still, you have any queries, you can mail us or WhatsApp. We will be happy to assist you.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>There are many instances where a company is making its regular transactions but still somehow got stuck in non-compliances of &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Intercorporate Loans Under Section 186\" class=\"read-more button\" href=\"https:\/\/aktassociates.com\/blog\/loans-under-section-186\/#more-3216\">Read more<span class=\"screen-reader-text\">Intercorporate Loans Under Section 186<\/span><\/a><\/p>\n","protected":false},"author":4,"featured_media":3221,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Intercorporate Loans Under Section 186 AKT 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