INVESTMENTS TO BE HELD IN COMPANY'S OWN NAME

According to Sub-section (1) of Section 49, investments made by a company (other than an
investment company) on its own behalf shall be made and held by it in its own name. The
requirement that the investment made by the company must be held in its own name is
confined to only those investments which are made by it on its own behalf and not on behalf
of someone else. In a case where the company is a trustee, the investment is supposed to be
made on behalf of the beneficiaries of the trust and not on its own behalf. Therefore, the
investments by the company as a trustee and held in the name of the beneficiaries is allowed.
Sub-section (2) of Section 49 provides that where a company has right to nominate a director
or directors on the Board of another company, it would be open to the appointing or
nominating company to hold the shares upto the amount of qualification shares (i) in its own
name, (ii) jointly in its own name and the name of appointee or nominee director, or (iii)
exclusively in the name of the appointee or nominee. As per Section 49(3), a company may
hold any share or shares in its subsidiary through nominee or nominees of the company if it is
so required to ensure that the number of members of the subsidiary does not fall below the
minimum number prescribed under the Act for public and private companies.
Where the shares of a company were registered in the joint names of the company and one of
its directors, it was held that the director was a nominee of the company for that purpose and
could only act jointly as he had no rights of his own. [Exchange Travel (Holdings) Ltd. Re,
(1991) BCLC 728 (Ch D)]. If company holds shares in dematerialised form, the name of
depository is entered in the register of members as member of the company and the name of
the investing company as the beneficial owner of the said shares. Section 49(6) provides that
the certificate or letter of allotment relating to the shares or securities in which investments
have been made by a company shall, except in two cases covered by Sub-sections (4) and (5)
be in the custody of such company or with the State Bank of India or a Scheduled Bank,
being the bankers of the company.
EXEMPTIONS
1. Sub-section (4) of Section 49 exempts a company from the requirement of holding
shares or securities on its own behalf and in its own name if its principal business
consists of buying and selling of shares or securities.

2. In terms of the provisions of Section 49(5), Section 49(1) does not prevent a
company:
a. from depositing with the bank, being the bankers of the company, any shares
or securities for collection of any dividend or interest payable thereon; or
b. from depositing with or transferring to, or holding in the name of, the State
Bank of India or a scheduled bank, being the bankers of the company, shares
or securities, in order to facilitate the transfer thereof. However, if within a
period of 6 months from the date from which the shares or securities are
transferred by the company to, or are first held by the company in the name of,
the State Bank of India or a scheduled bank as aforesaid, no transfer of such
shares or securities takes place, the company shall, as soon as practicable, after
the expiry of that period, have the shares or securities retransferred to it from
the State Bank of India or the scheduled bank or, as the case may be, again
hold the shares or securities in its own name; or
c. From depositing with, or transferring to, any person any shares or securities,
by way of security for the re-payment of any loan advanced to the company or
the performance of any obligation undertaken by it.
d. From holding investments in the name of a depository when such investments
are in the form of securities held by the company as a beneficial owner.
Thus, it is not necessary for the company to hold the shares or stocks or debentures in its own
name if they are deposited with the bank as aforesaid. A resolution of the Board of directors
in this behalf is sufficient. The bank is entitled to have the shares or debentures registered in
its own name with the specific purpose of collecting dividend or interest from the company
whose shares or debentures are deposited with the bank. The company holding the investment
in the name of the bank is only required to enter into a separate agreement with the bank that
the latter will collect dividend and interest and credit the company with the amounts so
collected. It may be noted that the deposit of shares, stocks and debentures with the bank
need not be by way of a pledge but may be made for the specific object of enabling the
banker to act as agent of the company to collect dividend and interest.
In the latest Companies Act, 2013, the provisions are similar with respect to the investment in
ones own name. Briefly, all investments made or held by a company in any property, security
or other asset shall be made and held by it in its own name. The company may hold any
shares in its subsidiary company in the name of any nominee or nominees of the company, if

it is necessary to do so, to ensure that the number of members of the subsidiary company is
not reduced below the statutory limit.
This Section does not prevent a company:
(a) from depositing with a bank, being a banker of the company, any shares or securities for
the collection any dividend or interest payable thereon; or
(b) from depositing with, or transferring to, or holding in the name of a scheduled bank, being
a bankers of the company, shares or securities, in order to facilitate the transfer thereof;
(c) from depositing with or transferring to any shares or securities by way of security for the
repayment of any loan advanced to the company or the performance of any obligation
undertaken by it;
(d) from holding investments in the name of depository when such investments are in the
form of securities held by the company as a beneficial owner.
REGISTER OF INVESTMENT (COMPANIES ACT, 2013)
Where in pursuance of clause (d) of sub-section (2), any shares or securities in which
investments have been made by a company are not held by it in its own name, the company
shall maintain a register which shall contain particulars and such register shall be open to
inspection by any member or debenture-holder of the company without any charge during
business hours subject to such reasonable restrictions.
If a company contravenes the provisions of this section, the company shall be punishable
with fine which shall not be less than twenty-five thousand rupees but which may extend to
twenty-five lakh rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to six months or with fine which
shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees,
or with both.
PENALTIES
1. In contravention of section 185 the company shall be punishable with fine ranging
between Rs.5,00,000/- to Rs.25,00,000/-. Also the concerned director shall be punishable
with imprisonment for six months or fine ranging between Rs.5,00,000/- to
Rs.25,00,000/- or with both;

2. In contravention of section 186 the company shall be punishable with fine ranging
between Rs.25,000/- to Rs.5,00,000/-. Also every officer in default shall also be
punishable with imprisonment for two years and fine ranging between Rs.25,000/- to
Rs.1,00,000/-;1

1 Available at http://taxguru.in/company-law/loans-investments-companies-act-

2013.html#sthash.PlmHrw8U.dpuf, Last visited on October 29, 2014.

CONCLUSION
Our understanding is that a law should be understood first in its simple interpretation. When
simple interpretation is not possible, only then one should go into complex possibilities. The
focus of Companies Act, 2013 is on proper compliance and adequate disclosure. It should not
mean restricting normal business activities and creating unnecessary hardship.
Companies Act 2013 demonstrates the systemic move towards greater regulation of corporate
transactions in India with a view to facilitate increased accountability. Companies Act 2013
has introduced greater disclosure and compliance requirements in regulating access of capital
by companies via loans and borrowings. The enhanced standards aim at protecting the rights
of the all stakeholders, specifically by facilitating greater shareholder participation when
companies obtain / provide loans. However, the move towards increased regulation of
corporate loans and borrowings under Companies Act 2013 shall significantly affect the
ability of companies (specifically private companies) to access funds.
There is always an apprehension that the flexibility given by Section 372-A or Section 186
for loans or investments can be misused to siphon of funds. The law makers must have
obviously kept in mind some fraud cases wherein inter corporate investments and loans are
used as a tool for siphoning of funds to group companies or director related firms or
companies. This apprehension may be the reason for bringing in restriction on layers of
investment. Let us hope that other sections in the new act too act as checks and balances for
preventing misuse of position of directors.