Inter Corporate Loans & Borrowings as per Companies Act, 2013 [CS Shivani Goyal]



Inter Corporate Loans and Investments by a Private Company:

Section 186(2) of the Companies Act, 2013 deals with Inter Corporate Loans and Investments by a Private Company-

  • A private Company can give loans or Give any security or provide a guarantee in connection with a loan to any other person or body corporate,

  • A private Company can acquire by way of purchase, subscription or otherwise, the securities of any other body corporate

(Upto 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.)

But, if a Private Company wants to give loans or Give any security or provide a guarantee or acquire by way of purchase, subscription or otherwise, the securities exceeding the above mentioned limit, it may do so after complying the following conditions:

  • Approval of Board- The Board approval is required irrespective of the amount of transactions. The approval of the Board shall be obtained by means of a unanimous resolution passed at a Board meeting with the consent of all the directors present at the meeting.

  • Approval of the members by passing Special Resolution- When the aggregate of the loan, investment, guarantee or security already made together with the loan, investment, guarantee or security proposed to be made exceeds the limit specified u/s 186(2), prior approval by means of a special resolution is necessary. No approval by way of SR is required when the giving of Loan, Guarantee or acquisition is by a Company to its Wholly Owned Subsidiary [WOS] or joint venture company [JVC].

  • Approval of public financial institution [PFI]- The company shall obtain the prior approval of PFI from which it has taken a term loan.

  • Rate of interest- The rate of interest chargeable should not be less than the prevailing yield of Government Security closest to the period of the loan.

  • No subsisting default with respect to deposits- If a company fails to repay the deposits or interest thereon on the due date, it may make loan, guarantee, investments or security only after the default has been made good.

  • Disclosures in financial statements- The Company shall disclose the full particulars of any loans given, investments made, guarantee or security provided, and the purpose for which the loan or guarantee or security is proposed to be utilized by the recipient in the Financial Statements.

Exceptions of this Section:

  • A Government company engaged in defense production.

  • A Government company, other than a listed company, in case such company obtains approval of the Ministry or Department of CG which is administratively in charge of the company or State Government, as the case may be.

  • The giving of Loans, Guarantee or Security is by a banking company in the ordinary course of its business or an insurance company in the ordinary course of its business 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.

  • Any acquisition made by a non-banking financial company whose principal business is the acquisition of securities.

Penalty for non Compliance:

For Company-

Fine – Minimum Rs. 25000 and,

Maximum Rs. 5,00,000

For an official in default-

Maximum Imprisonment – 2 years; and

Fine – Minimum Rs. 25,000 and,

Maximum Rs. 1,00,000

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