Section 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 a ny 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.
1[Explanation.—For the purposes of this sub-section, the word “person” does not include any individual
who is in the employment of the company.]
2[(3) Where the aggregate of the loans and investment so far made, the amount for which guarantee or
security so far provided to or in all other bodies corporate along with the investment, loan, guarantee or
security proposed to be made or given by the Board, exceed the limits specified under sub -section (2), no
investment or loan shall be made or guarantee shall be given or security shall be provided unless previously
authorised by a special resolution passed in a general meeting:
Provided that where a loan or guarantee is given or where a security has been provided by a company
to its wholly owned subsidiary company or a joint venture company, o r acquisition is made by a holding
company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary
company, the requirement of this sub-section shall not apply:
Provided further that the company shall disclose the details of such loans or guarantee or security or
acquisition in the financial statement as provided under sub-section (4).]
(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 conditi ons 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.

1. Ins. by Act 1 of 2018, s. 62 (w.e.f. 7-5-2018).
2. Subs. by s. 62, ibid., for sub-section (3) (w.e.f. 7-5-2018).

(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.
1[(11) Nothing contained in this section, except sub-section (1), shall apply—
(a) to any loan made, any guarantee given or any security provided or any investment made by a
banking company, or an insurance company, or a housing finance company in the ordinary course of its
business, or a company established with the object of and engaged in the business of financing industrial
enterprises, or of providing infrastructural facilities;
(b) to any investment—
(i) made by an investment company;
(ii) made in shares allotted in pursuance of clause (a) of sub-section (1) of section 62 or in shares
allotted in pursuance of rights issues made by a body corporate;
(iii) made, in respect of investment or lending activities, by a non -banking financial company
registered under Chapter III -B of the Reserve Bank of India Act, 1934 (2 of 193 4) and whose
principal business is acquisition of securities.]
(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 2[and a company will be deemed to be principally
engaged in the business of acquisition of shares, debentures or other securities, if its assets in the form
of investment in shares, debentures or other securities constitute not less than fifty per cent. of its total
assets, or if its income derived from investment business constitutes not less than fifty per cent. as a
proportion of its gross income.];
(b) the expression “infrastructure facilities” means the facilities specified in Schedule VI.