186. Loan and investment by company

(1) Without prejudice to the provisions contained in this Act, a company shall

unless otherwise prescribed, make investment through not more than two layers of investment

companies:

Provided that the provisions of this sub-section shall not affect,—

(i) a company from acquiring 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 from having 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.

(2) No company shall directly or indirectly —

(a) give any loan to any person or other body corporate;

(b) give any guarantee or provide security in connection with a loan to any other

body corporate or person; and

(c) acquire by way of subscription, purchase or otherwise, the securities of any

other body corporate,

exceeding sixty per cent. of its paid-up share capital, free reserves and securities premium

account or one hundred per cent. of its free reserves and securities premium account, whichever

is more.

(3) Where the giving of any loan or guarantee or providing any security or the

acquisition under sub-section (2) exceeds the limits specified in that sub-section, prior

approval by means of a special resolution passed at a general meeting shall be necessary.

(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.

(5) No investment shall be made or loan or guarantee or security given by the company

unless the resolution sanctioning it is passed at a meeting of the Board with the consent of

all the directors present at the meeting and the prior approval of the public financial institution

concerned where any term loan is subsisting, is obtained:

Provided that prior approval of a public financial institution shall not be required

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 limit as

specified in sub-section (2), 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.

(6) No company, which is registered under section 12 of the Securities and Exchange

Board of India Act, 1992 and covered under such class or classes of companies as may be

prescribed, shall 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.

(7) 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.

(8) 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.

(9) Every company giving loan or giving a guarantee or providing security or making

an acquisition under this section shall keep a register which shall contain such particulars

and shall be maintained in such manner as may be prescribed.

(10) The register referred to in sub-section (9) shall be kept at the registered office of

the company and —

(a) shall be open to inspection at such office; and

(b) extracts may be taken therefrom by any member, and copies thereof may

be furnished to any member of the company on payment of such fees as may be

prescribed.

(11) Nothing contained in this section, except sub-section (1), shall apply—

(a) 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;

(b) to any acquisition—

(i) 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:

Provided that exemption to non-banking financial company shall be in

respect of its investment and lending activities;

(ii) made by a company whose principal business is the acquisition of

securities;

(iii) of shares allotted in pursuance of clause (a) of sub-section (1) of

section 62.

(12) The Central Government may make rules for the purposes of this section.

(13) 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 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 two years and with fine which

shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.

Explanation.—For the purposes of this section,—

(a) the expression “investment company” means a company whose principal

business is the acquisition of shares, debentures or other securities;

(b) the expression “infrastructure facilities” means the facilities specified in

Schedule VI.