1. Section 186 of the Companies Act 2013 – Loan and Investment by Company
Applicability:
In pursuance to the provisions of Section 186(1) of the Act, a Company shall make investment
through not more than two layers of investment companies.
 Layer - in relation to a holding Company means its subsidiary or subsidiaries
[explanation (d) of Section 2(87) of the Act]
The provisions of Section 186 (1) shall not have effect in the following cases:
 A Company acquires any other Company which is incorporated outside India if such other
Company has Investment Subsidiary beyond Two layers as per the law of such country.
 A subsidiary Company from having any investment subsidiary for the purpose of meeting the
requirement under any law or under any rule or regulation framed under any law for the time
being in force.
Loans /Guarantee/Security/Investment:
In pursuance of Section 186(2) of the Act, no Company shall directly or indirectly give any
loan to any person or other body corporate, give any guarantee or provide security in
connection with a loan to any other body corporate or person and acquire by way of
subscription, purchase or otherwise, the securities of any other body corporate, exceeding
60% of its paid-up share capital, free reserves and securities premium account or 100%
of its free reserves and securities premium account, whichever is more.
Approval from members:
Section 186(3) empowers a Company to give loan, guarantee or provi de any security or
acquisition beyond the limit mentioned in Section 186(2) subject to prior approval of members
by way of special resolution passed at a general meeting.

2. Disclosure of particulars of loan given, investment made, guarantee given and security
provided:
In pursuance to Section 186(4) of the Act, it is duty of the Company to disclose in the
Financial Statement the full particulars of the loan given, investment made, guarantee given
and security provided and the purpose for which loan, investment, guarantee and security is
proposed to be utilized.
Approval of Board and Public Financial Institution:
As per Section 186(5) of the Act, every Company shall take consent of all the directors present
at the board meeting before making any investment, giving loan and guarantee and providing
security.
In case any term loan is subsisting, prior approval of Public Financial Institution shall be
required where the aggregate loan, investment, guarantees and security propose d is exceeding
the limits as specified under section 186(2) and there is default in repayment of loan or
interest thereon to the Public Financials Institution.
Rate of Interest at which loan can be given
As per Section 186 (7), loan can’t be given 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.
Restriction in case of non-payment of loan
As per Section 186 (8), no company can give loan which have default in repayment of deposits
or in payment of interest thereon taken after or before commencement of this Act.
Register to be maintained:
Section 186(10) of the Act mandates every Company to maintain a register which shall contain
particulars of loan or guarantee given or security provided or investment made.

3. This register shall be kept at the registeredoffice and opened for inspection and extracts may
be taken there from by any members and copies thereof may be furnishedto any member of
the Company on payment of such fees as may be prescribed.
Exemption:
The Section 186 (except Sub Section 1) of the Companies Act, 2013 does not apply to the
following:
 Banking Company, Insurance Company, Housing Finance Company etc.
 Any Company whose main business of acquisition of shares or securities etc.
 Non-Banking Financial Company.
 Shares allotted in pursuance of clause (a) of sub section (1) of section 62.
 A loan or guarantee is given or where a security has been provided by a company to its wholly
owned subsi diary company or a joint venture company, or acquisition is made by a holding
company, by way of subscription, purchase or otherwise of, the securities of its wholly owned
subsidiary company.
 Loans and/or advances made by the companies to their employees, other than the managing or
whole time directors (which is governed by section 185) are not governed by the requirements
of section 186 of the Companies Act, 2013.
Provided that such loans/advances to employees are in accordance with the conditions of
service applicable to employees and are also in accordance wi th the remuneration policy, in
cases where such policy is requiredto be formulated,
Penalty:
For Company:
Every Company which contravenes the provisions of this Section shall be liable to a penalty
which shall not be less than Rs. 25,000/- but which may extend to Rs. 5.00 lacs.
For Officers:-
Every officer of the Company who is default shall be punishable with imprisonment for a term
which may extend to two years and fine which shall not be less than Rs. 25,000/- but which
may extend to Rs. 1.00 lacs.