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L O A N A N D I N V E S T M E N T B Y C O M P A N Y U N D E R T H E C O M P A N I E S A C T, 2 0 1 3

Loan And Investment by Company Under The

Companies Act, 2013

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Loan And Investment by Company Under The Companies Health Certificate

Act, 2013 for Pork and Pork
Products

The Companies Act, 2013 brought about a standard shift in the Indian Corporate environment
by replacing the 58-year-old Companies Act, 1956. The purpose of replacing the Companies Health Certificate
for Fish and
Act, 1956 was to enhance corporate governance, clarify regulations, strengthen the interests
Fishery Products
of minority investors, and develop an Act suited to the present business environment and
foreign best practices.

Section 186 of Companies Act, 2013 deals with the provisions of loans and investments by a
company. The Companies Act, 2013 has come with a change in the theory of “Loan and
Investment by Company“. The new Act provides that inter-corporate investments are not to be
Tags
made through more than two layers of investment companies. There was no such provision in
the erstwhile Companies Act 1956.
Digital India Business Skill India Co
The word ‘Investment’ in day to day discourse would involve any right or property in which mplyBook Compliance a

capital or money is invested, like an investment of money in equity shares, mutual funds, need Trademark Gaming Skills India Epharmacy M

debentures or other securities (except the making of loans or advances or any other financial anagement Digital Compliance Compliance POSH
transactions such as lease, purchase of receivables, or other credit facilities). An ‘Investment
Sexual Harssment Mediation Alternative Dispute (ADR)
Company’ means a company whose principal business is the sale and purchase of shares,
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debentures, and other several types of securities.
ospitality Fitness Lifestyle GST Tax Taxation Goods a

d Services Tax Food Operation FSSAI Water Pollution So

Section 186 of the Companies Act, 2013 relates to “loan and investment by the company”. It ar Panel Waste Waste Management Risk Management C

provides for approval matrix, monetary threshold,, recordkeeping, exemption from ontract Contract Act Fire Safety Fire Safety Hazard Plast

compliances, r guarantee, security, restrictions for giving loans, or making an investment in c Plastic Waste Management National Green

another entity. The other relevant provisions are Rules made under Section 186 of the Act.
Tribunal NGT Groundwater Commercial Industries Com

Legal Requirements Under Section 186 petition Act Dominant Position Anti Competitive Agreemen

s Banking Regulation Insurance Law Budget Financial Y

1. Approval of Board:
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1. The approval of the Board is needed in all cases irrespective of the investment,
panies Act Compoundable Offenses Non-Compliance Cor
amount of loan, guarantee, or security.
orate Social Responsibility CSR Data Data Localization D
2. The approval of the Board shall be acquired by means of a unanimous resolution
rector Disclosure of Interest Cheque Negotiable Instrumen
passed at a Board meeting with the permission of all the directors present at the
meeting. s Act Promissory Estoppel Healthcare Medical FDI Fore

3. Resolution by circulation or resolution of the committee of directors is not enough. gn Direct Investment RERA Real Estate Regulatory and Auth

2. Approval of the members by passing Special Resolution: ority Act Maternity Benefit Maternity Benefit Act Adoption

1. When the aggregate of the loan, guarantee, investment or security already made Director Identification Number DIN Meetings MOA AOA

together with the loan, guarantee, investment or security proposed to be made Memorandum of Association Article of Association SARFA

exceeds the limit provided under section 186(2), prior approval by means of a ESI Act Recovery Banking Institutions Ordinary

special resolution is required. Resolution Special Resolution Paternity Benefit PDP Per

2. Limit under section 186(2) is higher of –

onal Data Protection Bill Electronic Mode Payment SEBI I

1. Sixty percent of paid-up share capital, free reserves, and securities premium sider Trading Ministry of Corporate Affairs Show Cause No

or ice Statutory Register Labour Law The Code on Wages

2. Hundred percent of free reserves and securities premium. Act MSME's Micro, Small and Medium Enterprises Merger

3. The contents of the Special resolution shall comprise the total amount up to which
Extensible Business Reporting Language XBRL Arbitration

the Board is authorized to make loans, investment, guarantee or security.

Insurance Students Penalty Dishonor Doctrine Annual
4. No approval by way of special resolution is necessary, where –
eturn Annual Return Registration company Mother Fat

1. The loan is provided by a company to its Wholly Owned Subsidiary or to joint her Paternity Benefit Prohibition Consolidated Reply Rep

venture company, or
y to Show Cause Notice Compliance Management System
2. The guarantee is provided or security is given by a company to its Wholly
eave Policy Workplace eCommerce Intermediary Liability
Owned Subsidiary or to a joint venture company.
T Act Information Technology Act Consumer Protection
3. Where the acquisition of securities of its wholly-owned subsidiary is made by
Act Consumer Amendment Companies Amendment Act
a holding company, by means of subscription or otherwise.
oreign Exchange FEMA Foreign Exchange Management Ac
3. Approval of public financial institution [PFI]:
t Continuing Guarantee Money Laundering Money Clinic
1. The company shall acquire the prior approval of a public financial institution [PFI]
Clinical Establishment The Clinical Establishment Act Res
from which it has taken a term loan.
erve Bank of India RBI Doctrine Caveat Emptor Buyer Co
2. Approval of public financial institution [PFI] is not necessary if –
pyright Copyright Infringement Infringement Copyright Ac
1. The aggregate of loans, investments, guarantee, or security already made
t Essential Commodities Essential Commodities Act Prin
together with the loan, guarantee, investment or security proposed to be
ciple of Quantum Meruit Quantum Meruit Court Contempt
made does not exceed the limit provided.
Contempt of Court Right Information Right to
2. There is no default in interest to PFI or repayment of loan installments in
accordance with the terms and conditions of such term loan. Information Right to Information Act RTI Law Imprisonm

4. Rate of interest: ent Prison Law of False Imprisonment Tort Indian Penal

Code IPC Res Judicata Indian Evidence Act Civil Procedu

1. The rate of interest chargeable should be more than the prevailing yield of
Government Security closest to the time period of the loan. e Code CPC Doctrine of Res Judicata Know Your Custome

5. No subsisting default with respect to deposits: r KYC Know Your Client Corporate Merger Legal Trade

rade License LLP Limited Liability

1. A company that has defaulted payment of interest on deposits or in repayment of
any deposits accepted by it shall not make any loan, investments, guarantee or Partnership Partnership Settlement Settlement Scheme

security till such default is subsisting. icense Copyright License Bankruptcy Insolvency Insolve
 6. Disclosures in financial statements: cy Bankruptcy Code IBC Surrogacy Surrogacy (Regulation

Bill Fresh Start Scheme FSS Income Tax Deductions Tax

1. The company shall disclose to the members in the financial statement-
es Digital Tax Finance Act Refund General Data Protectio
1. The complete particulars of any, investments made, loans are given,
Right GDPR Privacy Privacy Law Digital Privacy Legaliza
guarantee or security provided, and
on Secretarial Audit Report Audit Report MCA Key Man
2. The reason for which the guarantee or loan or security is proposed to be
utilized by the recipient. gerial Personnel KMP FCRA Foreign Contribution Regulati

n Act Foreign Contribution Foreign Joint Venture Joint Ve

Exceptions under Section 186

nture Agreement Agreement Corporate Governance Gove

Section 186 is not applicable to certain transactions. Hence, this Section would not apply to
nance Corporate Sole Proprietorship GSTR Double Taxat
any guarantees or loans given by the following as under:
on Aadhar Udyog Aadhar ESI Employee State Insurance

1. An insurance company or a banking company or a housing finance company for Act UAN Universal Account Number E-commerce Vigil M

transactions made in the ordinary course of business.

chanism Whsitleblower Policy Nidhi Companies NBFC Pr
2. A company framed with the sole intention of financing industrial enterprises or for giving
vate Company Private Limited Company Public Company C
infrastructure facilities.
mpany Company Secretary CS Charge Covid-19 EMI M
3. An organization that purchases the rights of shares.
oratorium Moratorium Lockdown Installment Economic
4. A company whose principal business is the acquisition of shares.
elief Package Corporate Tax Income Tax Act 20 Trillion Ec
5. A registered non-banking finance company that particularly focuses on the acquisition of
securities. nomic Bharat Atmanirbhar Bharat Abhiyan Patent Applica

6. Unlisted companies are legally authorized by the Ministry or Department of the State or tion IPR Intellectual Property Rights Share Share Capital

Central Government. Nomination & Remuneration Committee Nomination Comm

7. A government company that operates defense production. ttee Remuneration Committee Firm Woman Director One

Person Company Design Design Act Loan Invest Mixed

Penal Provision under Section 186 
upply Business Responsibility Report Dissolution Capital G
1. For Company:
ains Tax Audit Committee General Agreement on Trade in S
Every company shall be liable to a penalty which shall be not less than 25,000/- rupees, which
may extend to 5,00,000/- rupees. rvices GATS Indian Contract Act Novation Rescission A

eration Offer Promise Reciprocal Promise Communicatio

2. For Officer:
of Proposal Communication Proposal Acceptance Void A
Every officer who is in default shall be punishable with imprisonment for a term which may
greements Lapse of Offer Consent Free Consent Damage
extend to 2 years and fine which shall be not less than 25,000/- rupees, which may extend to
1,00,000/- rupees. s The Air (Prevention and Control of Pollution) Act Misrepre

entation Contingent Contract Quasi-Contractual Obligation

s NGT National Green Tribunal Mistake of Fact Mistake o

Law Noise Pollution (Regulation and Control) Rules Environ

Tags: Companies Act, Companies Amendment Act, company, Loan, Investment mental Clearance Regulation E-Waste Management Environ

mental Impact Assessment Pollution Polluter Pays Outsou

cing Contracts food foodsafety hygiene fssai Types of

Offer Specific Offer Cross Offer Example General Offer Exa

mple Standing Offer Example Implied Offer Example Quan

um Meruit Meaning Quantum Meruit Means Suit for Quantu

m Meruit Suit upon Quantum Meruit Quantum Meruit in Con

ract Law Reciprocal Promise Meaning What is Reciprocal P

omise FICS FICS FSSAI FOOD IMPORT CLEARANCE SYST

EM FICS IMPORT Shreya Singhal vs Union of India Shreya

Singhal v. Union of India Shreya Singhal v Union of India Sec

ion 66A Information Technology Act,2000 KMP in Compan

y Managerial Personnel Appointment of Company

Secretary Removal of Company Secretary Resignation by Co

 mpany Secretary Environmental Legislation In India Environ

mental Laws In India Essential Elements of a Contract India

n Contract Act Free Consent Legally Valid Contract Elemen

s of Contract Doctrine of Caveat Emptor Doctrine of Cavea

Emptor Case Laws Let the Buyer Beware Sales of Goods Ac

1930 Lapse of an Offer Circumstances Lapse of an Offer C

se Laws Horizontal Anti Competitive Agreement Vertical An

i Competitive Agreement Horizontal vs Vertical Anti Competi

ve Agreements Illegal Association in Company Law Section

464 of Companies Act 2013 Illegal Association Case Laws I

egal Association Penalty Scope of FEMA Adoption of Foreig

n Exchange Management Act by Parliament of India Differen

e Between FEMA And FERA Directorate of Enforcement WT

O Law of Insurance Indian Insurance Law Introduction of I

surance Principles of Insurance Law

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