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 (15 of 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 (2 of 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.
