LOANS
AND INVESTMENT BY COMPANY –SEC.186
Investment by company:
A company shall unless otherwise prescribed,
make investment through not more than
two layers of investment companies except – if ;
(i)
a company from acquires 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;
(ii)
a subsidiary company has 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.
Activities Covered:
·
giving any loan to any person or other body corporate;
·
giving any guarantee or provide security in
connection with a loan to any other
body
corporate or person; and
·
acquiring by way of subscription, purchase or
otherwise, the securities of any
other body corporate.
Limits:
The
aggregate of activities, which are made directly or indirectly by the company,
should not exceed the limit of –
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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
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Approval by Special Resolution:.
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 section 186 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.
The
company has to pass the special resolution within one year from the date of
notification of this section.(i.e.,on
or before 31st March,2015)
A resolution passed at a
general meeting to give any loan or guarantee or investment or providing any
security or the acquisition shall specify
the total amount up to which the Board of Directors are authorised to give such
loan or guarantee, to provide such security or make such acquisition
Exceptions:
Prior
approval by means of Special Resolution passed at a general meeting is not
required – if
·
a loan or guarantee is given or where a
security has been provided by a company to its wholly owned subsidiary (WOS)
company or a joint venture (JV) company, or
·
acquisition is made by a holding
company, by way of subscription, purchase or otherwise of, the securities of
its WOS company
Disclose in Financial Statement:
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.
Approval of PFI:
An
investment shall be made or loan or guarantee or security given by the company
only
after
the resolution sanctioning it is passed
at a meeting of the Board with the consent of
all the directors present at the meeting.
If
any term loan is subsisting in a company, prior approval of the Public Financial
Institution (PFI) concerned is also
required for making any investment, loan, guarantee or security.
Exceptions:
·
Where the aggregate of the loans and
investments so far made, the amount for which guarantee or security so far
provided to or in all other bodies corporate, along with the investments, loans,
guarantee or security proposed to be made or given does not exceed the 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; and
·
There is no default in repayment of loan
instalments or payment of interest thereon as per the terms and conditions of
such loan to the public financial institution.
Inter-Corporate loans/Deposits:
Companies
which are registered under section 12 of
the SEBI Act, 1992 and covered under such class or classes of companies as may
be prescribed, shall not take
inter-corporate loan or deposits exceeding the prescribed limit and such
company shall furnish in its financial statement the details of the loan or
deposits.
Rate of Interest:
No
loan shall be given under this section at a rate of interest lower than the prevailing
yield of one year, three year, five year or ten year Government Security
closest to the tenor of the loan.
No company
which is in default in the repayment of any deposits accepted before or after
the commencement of this Act or in payment of interest thereon, shall give any
loan or give any guarantee or provide any security or make an acquisition till
such default is subsisting.
Register of
Loans, Investments, Guarantee or Security :
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Form
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Every company giving
loan or giving guarantee or providing security or making an acquisition of
securities shall, from the date of its
incorporation, maintain a register
in Form MBP 2 (w.e.f 1st
April, 2014) and enter therein separately, the particulars of loans and
guarantees given, securities provided and acquisitions made as aforesaid
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Entries
in the Register
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The entries in the register shall be made chronologically in respect of each
such transaction within 7 days of
making such loan or giving guarantee or providing security or making
acquisition
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Place
of Keeping
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The
register shall be kept at the
registered office of the company and the register shall be preserved permanently and shall be kept in the custody of the company
secretary of the company or any
other person authorised by the Board for the purpose.
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Authentication
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The entries in the
register (either manual or electronic) shall be authenticated by the company secretary of the company or by any other person authorised by the Board
for the purpose
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Maintenance
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The register can be
maintained either manually or in
electronic mode.
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Inspection
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The register shall be open to inspection at registered office of the company
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Extract
from Register
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The extracts from the register may
be furnished to any member of the company on payment of such fee as may be
prescribed in the Articles of the company which shall not exceed Rs.10/- for each page
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Companies/ Transactions Exempted:
This
section shall not apply –
·
to a loan made, guarantee given or security
provided by a banking company or an insurance
company or a housing finance company
in the ordinary course of its business or a company engaged in the business of financing of companies or
of providing infrastructural facilities;
·
to any acquisition made by a non-banking
financial company registered under Chapter IIIB of the Reserve Bank of
India Act, 1934 and whose principal business is acquisition of securities in
respect of its investment and lending activities;
·
to any acquisition made by a company whose
principal business is the acquisition of securities;
·
to any acquisition of shares allotted in pursuance of section 62(1)(a).(Further
Issue of Capital)
“business of financing of companies” shall include, with regard to
a Non-Banking Financial Company registered with Reserve Bank of India,
“business of giving of any loan to a person or providing any guaranty or
security for due repayment of any loan availed by any person in the ordinary
course of its business”.
investment
company” means a company whose principal business is the acquisition of shares,
debentures or other securities;
“infrastructure
facilities” means the facilities specified in Schedule VI.
Penalty:
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Company
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Fine of Rs.25,000/- to Rs.5,00,000
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Officer
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Imprisonment up to 2 years and
Fine of Rs.25,000/- to Rs.1,00,000/-
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Companies
Act,1956 Vs Companies Act,2013:
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S.No
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Cos
Act,1956
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Cos
Act,2013
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1
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The limit prescribed was 60 % of Paid-up
share capital and Free Reserve or 100 % of Free Reserves whichever is more.
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The limit prescribed is 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
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2
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Rate of interest should be in respect of
bank rate under RBI Act.
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Rate of interest should be in respect of
dated government security.
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3
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Loans or investments by holding company to
its WOS company were exempted.
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There is no exemption for these
loans/investments.
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4
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Private Companies were totally exempted
from the provisions of Section 372A.
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Even Private companies will be subject to
strict compliance.
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5
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One could escape from the punishment of
imprisonment by fully repaying the inter-corporate loan contravening sec.372A
q
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This is not possible
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6
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For the purpose of Sec.372A, loan includes
debentures.
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This is not so under Sec.186.
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By
M.Kurthalanathan B.Com,ACS,MBL
Practising Company Secretary
NBFC is exmpet from section 186. Being that is the case it need not take board's approval for granting loans to body corporate or to any person. Is it correct? Pls. Confirm.
ReplyDelete