Section 186 of the Companies Act, 2013
Section 186 of the Companies Act, 2013
Title: "Loan and investment by company"
📘 Summary:
Section 186 governs the provisions related to a company giving loans, guarantees, securities, or making investments in other companies or bodies corporate. It ensures that such financial transactions are done within limits and with proper approvals to protect the company’s and shareholders’ interests.
🔍 Key Provisions:
✅ 1. Applicability:
Applies to all companies, including private and public, except:
Banking companies,
Insurance companies,
Housing finance companies,
Companies engaged in the business of financing or infrastructure projects (in certain conditions).
💸 2. Limits Without Special Resolution:
A company cannot:
Give loan, or
Provide guarantee/security, or
Make investment in other bodies corporate,
exceeding 60% of:
Its paid-up share capital, free reserves, and securities premium account,
or
100% of:
Its free reserves and securities premium account,
whichever is more,
without passing a special resolution in a general meeting.
🏦 3. Approval of Board:
All such transactions require approval by the Board of Directors through a unanimous resolution at a board meeting.
📃 4. Disclosure:
Full disclosure of such loans/investments/guarantees/security must be made in the financial statements.
🚫 5. Restriction:
A company cannot give loans at a rate of interest lower than the prevailing government security rate of equivalent maturity.
📑 6. Register of Investments/Loans:
A register must be maintained with full particulars of:
Loans given,
Guarantees or securities provided,
Investments made.
This register must be kept at the registered office and be open for inspection.
⚖️ Penalties for Contravention:
Company: Fine up to ₹5 lakh.
Officer in default: Fine up to ₹1 lakh and imprisonment up to 2 years.
🧾 Objective:
To ensure financial prudence, prevent misuse of funds, and maintain transparency in inter-corporate financial dealings.
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