LOAN AND

INVESTMENT
COMPANY LAW
2013.
Submited by:-
SUBMITTED TO:-
ANSHU KUMAR DR. P.K. DAS sir.
CUSB2013125023 ASSOCIATE PROFESSOR
6-SEMESTER SLG, CUSB.

BA.LLB(HONS)
2020-2025.
LOAN & INVESTMENTS:-
 Investment in common meaning include any property or right in which money or capital is
invested for getting return.
 In company law the term Investment is used in a limited sense.(to mean the investment of
money in shares, stock, debentures or securities or similar debt securities. Section- 186(2)(c).
 Power to invest the fund of company is the prerogative of the Board of Director. This power is
derived by board under section 179 of company act,2013.
 Exception:- these will not counted as investment

• Making of loan or advances in day to day businesses normal advances and loans.
• Any other financial transactions such as lease, purchase of receivable or other
credit facilities.
 CONTINUED:-
 Apart from section 186(2) there are some more thing which comes under investment

Providing Security loans

investment
acquisition Giving guarrentee
SECTION 186 OF THE
COMPANY ACT 2013.
Section 186(1)
A company shall not make investment through more than two layer of investment company.
Exemption
A company acquiring any other company which incorporated outside India and such company has
investment subsidiary more than two layer as per law of that country.
A subsidiary company from having any investment subsidiary for the purposes of meeting the
requirements under any law.

 LIMIT ON LOAN AND INVESTMENT MADE BY COMPANY section186(2)- Company shall not
directly or indirectly:-
More than 60% of Paid up share capital + Free Reserves + Security Premium account.
Or 100% of Free Reserves + Security Premium Account Whichever is more
The Board of Director of the company shall make investment or give loan, give guarantee or provide
security in connection to loan within the limit prescribed under section- 186(2) by passing Board
Resolution.
CONTINUED:-
 The contents of the Special resolution shall comprise the total amount up to which the Board is
authorized to make loans, investment, guarantee or security.
 No approval by way of special resolution is necessary, where –

1. The loan is provided by a company to its Wholly Owned Subsidiary or to joint venture
company, or
2. The guarantee is provided or security is given by a company to its Wholly Owned
Subsidiary or to a joint venture company.
3. Where the acquisition of securities of its wholly-owned subsidiary is made by a holding
company, by means of subscription or otherwise.
CONTINUED:-
 ACCORDING to section-186(3)-

A Company can give loan, guarantee or provide any security or make any investment beyond
the limits specified u/s 186(2), by passing Special Resolution in General Meeting.
Note- Section- 186(3) does not apply on investment or loan made by company to its wholly
owned subsidiary company.
DISCLOUSRE REQUIREMENT as per section-186(4)-
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.
 CONTINUED:-
 As per section 186(5)-

Prior approval from Public Financial Institution is required

1. The aggregate amount of loan or guarantee given, security provided or investment made
exceed the limit as specified in section 186 (2).
2. Default is made in repayment of loan instalments or payment of interest thereon as per the
terms and conditions of such loan to the public financial institution.
 2. Approval of public financial institution [PFI] is not necessary if –

1. The aggregate of loans, investments, guarantee, or security already made together with the
loan, guarantee, investment or security proposed to be made does not exceed the limit provided.
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.
CONTINUED:-
 As per section-186(6)-

No company registered under section 12 of the Securities and Exchange Board of India Act,
1992 and also covered under such class or classes of companies which may be notified by the
Central Government in consultation with the Securities and Exchange Board, shall take any
inter-corporate loan or deposits, in excess of the limits specified under the regulations applicable
to such company, pursuant to which it has obtained certificate of registration from the Securities
and Exchange Board of India
 As per section-186(8)–

Company who make default in the repayment of any deposits 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

 Every company which makes a loan, investment, guarantee or security shall maintain a
register.
 The register shall contain the prescribed particulars and in the prescribed manner.
 The register shall be kept at the registered office of the company.
 The register shall be opened for inspection at the registered office of the company.
 The Copies of the register may be obtained by any member on payment of prescribed fees.
CONTINUED:-
 Also, the extracts may be taken out from the register by any member on payment of prescribed
fees The register shall be maintained in Form MBP – 2.
 The register shall be maintained with effect from the date of its incorporation.
 The register shall be preserved permanently. Company secretary of the company or any other
person authorized by the Board is required to maintain the register under its custody.
 The register shall be maintained either manually or in electronic mode.
 The register shall be prepared with effect from the date of its incorporation.
EXCEPTIONS UNDER SECTION
186
 Section 186 is not applicable to certain transactions.

Hence, this Section would not apply to any guarantees or loans given by the following as under:
1. An insurance company or a banking company or a housing finance company for
transactions made in the ordinary course of business.
2. A company framed with the sole intention of financing industrial enterprises or for giving
infrastructure facilities.
3. An organization that purchases the rights of shares.
4. A company whose principal business is the acquisition of shares.
5. A registered non-banking finance company that particularly focuses on the acquisition of
securities.
6. Unlisted companies are legally authorized by the Ministry or Department of the State or
Central Government.
7. A government company that operates defense production.
PENAL PROVISION UNDER
SECTION 186 
 For Company:

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.
 For Officer:

Every officer who is in default shall be punishable with imprisonment for a term which may
extend to 2 years and fine which shall be not less than 25,000/- rupees, which may extend to
1,00,000/- rupees.
T H A NK
YO U