LOAN AND INVESTMENT BY A COMPANY

  1. What is Inter-Corporate Loan?

Whenever a Company gives (Either directly or indirectly)

  • Any Loan: To any person* OR any other Body Corporate;
  • Any Guarantee or provide security: To any person* OR any other Body Corporate;

*the word “person” not includes any individual, who is in the employment of the Company.

  1. What is Inter-Corporate Investment?

               Whenever a Company (Either directly or indirectly).
                  Acquire Securities of any Body Corporate.

  1. Applicability of Section

                  Section 186 of the Companies Act, 2013

  1. Limit on Inter-Corporate Loan and Investment (Section 186 sub-section (2))

Case

Prescribed Limit 

Type of Meeting

Type of Resolution

1.

Up to and equal to 

60% of (Paid-up share capital + Free Reserve +Security Premium Account)

OR

100 % of (Free reserves + securities premium account)

whichever is more.

Board Meeting

Board Resolution

(Pass BR with the Consent of all director present at the Board Meeting)

                             

2. Exceeding 

60% of (Paid-up share capital + Free Reserve +Security Premium Account)

OR

100 % of (Free reserves + securities premium account)

whichever is more.

General Meeting

Special Resolution

+

         Obtain prior approval of the Public Financial Institute, in case any term loan is subsisting at that time.(if any)

  1. Relaxation for Passing Special Resolution {the requirement of section 186(2) shall not apply in the following cases}

            Whenever a Company gives (Either directly or indirectly)

  • Any Loan: To its wholly-owned subsidiary Company, or Joint Venture Company;
  • Any Guarantee or provide security: To its wholly-owned subsidiary Company, or Joint Venture Company;

                                   Or

           Whenever a Holding Company (Either directly or indirectly)

  • Acquire Securities of its wholly-owned subsidiary Company, by way of subscription, purchase or otherwise.
Please Note: The company shall disclose to the Members, the details of such loans or guarantee or security or acquisition in its financial statement according.
  1. Details to be mentioned by the Recipient Company in the Financial Statement:

  • Full particulars of the Loans given, Investment made, or guarantee given, Security provided;
  • The purpose for which Loan or Guarantee or Security is proposed to be utilized.
  1. Penalty:  If any Company contravenes this section i.e., Section-186,

 

Penalty applicable on

Punishable with Fine(Rs.)

Punishable with Imprisonment

Company

Minimum Maximum Not Applicable
25,000 (Twenty Five Thousand Rupees) 5,00,000(Five Lakh Rupees)
Every Officer of the Company, who is in default Minimum Maximum

For a term, which may extend to two Years

25,000 (Twenty Five Thousand Rupees)

1,00,000(One  Lakh Rupees)

 

Disclaimer: This disclaimer informs that the views, thoughts and opinions expressed are sole to the author of this Article and not do not represent the opinions of any other, whatsoever with which I have been, am now, or will be affiliated.

Thanks & Best Regards
CS Riya Khurana
[email protected]
Contact No.: 8810649870

Cs Riya Khurana

Cs Riya Khurana