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to have far-reaching consequences on all companies operating in India. While a part of the 2013
Act has already become effective, the Draft Rules are in the midst of a consultation process.
DEFINITION OF HOLDING COMPANY BARE ACT LANGUAGE
As per Section 2(87) subsidiary company or subsidiary, in relation to any other company
(that is to say the holding company), means a company in which the holding company
(i)
(ii)
Provided that such class or classes of holding companies as may be prescribed shall not have
layers of subsidiaries beyond such numbers as may be prescribed
Explanation.For the purposes of this clause,
(a) a company shall be deemed to be a subsidiary company of the holding company even if
the control referred to in sub-clause
(i)
or sub-clause
(ii)
is of another subsidiary company of the holding company;
(b) the composition of a companys Board of Directors shall be deemed to be controlled by
another company if that other company by exercise of some power exercisable by it at its
discretion can appoint or remove all or a majority of the directors
(c) the expression company includes anybody corporate;
(d) (d) layer in relation to a holding company means its subsidiary or subsidiaries;
PROVISIONS APPLICABLE ON HOLDING AND SUBSIDIARY COMPANY:Investment only through two layers
A company shall make investments through not more than two layers of subsidiary investment
companies unless provided otherwise.
Section 186 of the Companies Act 2013 - Loan and Investment by Company: Introduction:
The Companies Act, 2013 (Act) has come up with a change in the concept of 'Loan and
Investment by Company. The new Act provides that inter-corporate investments not to be made
through more than two layers of investment companies. There is no such provision under section
372A of erstwhile Companies Act, 1956.
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]
'investment Company' means a Company whose principal business is the acquisition of shares,
debentures or other securities
The provisions of Section 186 (1) shall not have effect in the following cases:
A Company acquires any Company which is incorporated outside India. Such 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
of the requirement under any law framed under any law for the time being in force.
the limits that will be required in excess of prescribed limits involved in the proposal;
ii.
iii.
iv.
the source of funding for meeting the proposal and other details as may be specified
body corporate. But it is to be kept in mind that the intermediary company through
which investments are made must have to be a company.This section mandates a
company to make investment only through two layers of investment companies. If
ABC Ltd. makes an investment in XYZ Ltd. and further XYZ Ltd. makes an
investment in PQR LLP whereas PQR LLP holds shares of SSB Ltd., there is no
violation of Section 186 (1) of the Act as there are not more than two layers of
investment companies.It is the investor company which shall be held liable in case
of any violation of the section; therefore, It is prudent and advisable that the
investee company to seek a declaration from the investor company whether the
investment made by the investor is coming from more than two layers up
Though the Section 186(2) makes restriction as above, Section 186(3), empowers a Company to
give loan, guarantee or provide any security or acquisition beyond the limit but subject to prior
approval of members by a special resolution passed at a general meeting.
Disclosure of particulars of loan, guarantee given and security provided:
In pursuant to provisions of Section 186(4) of the Act, it is duty of the Company to disclose in
the Financial Statement the full particulars of the loan, guarantee given and security provided
and its utilization.
Approval of Board and Public Financial Institution:
In pursuant to provisions of 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 of Company has already taken loan etc., from any
Public Financial Institutions, then it is mandatory to take prior approval from such Public
Financial Institution.
Provided that prior approval of Public Financial Institution shall not be required where the
aggregate loan, investment, guarantee and security proposed is within the limits as specified
under section 186(2) and there is no default in repayment of loan or interest thereon to the Public
Financials Institution.
Companies Registered under Securities Exchange Board of India (SEBI):
Section 186(6) of the Act provides that those Companies which are registered under Section 12
of SEBI Act, 1992 and other prescribed Companies can take inter-corporate loans or deposits
exceeding the prescribed limit. The intention of government is clear, if the Company is registered
under SEBI, this section is not applicable for the part of limit but, simultaneously, prescribed a
condition that:
Provided that such companies shall furnish details of loans or deposit in their Financial
Statements.
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.
This register shall be opened for inspection and copies may be furnished to to members who
demands for the same on payment of prescribed fee.
i.
Sec. 186(9) + Rule 12(1)- Maintain (in electronic mode or manually) the register in
the Form MBP-2 from the date of its incorporation
ii.
Sec. 186(9) + Rule 12(2)- Entries to be made in the register within 7 days
iii.
Sec. 186(9) + Rule 12(3)- Place of Keeping the register- Registered office
iv.
v.
Sec. 186(9) + Rule 12(6) - Inspection charges not exceed Rs. 10/-for each page.
Non Applicability: 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.,
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. 25000/- 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. 25000/- but which may
extend to Rs. 1.00 lacs.
Note: Ministry of Corporate Affairs has issued a clarification through General Circular No.
18/2013. dated 19.11.2013 with regard to applicability of provision of Section 372A of the
Companies Act, 1956. It was unequivocally clarified in the said Circular that Section 372A of the
Companies Act, 1956 dealing with inter-corporate loans continue to remain in force till section
186, of the Companies Act, 2013 is notified.
4. Acquire by way of
subscription, purchase or
otherwise, the securities of
any other body corporate
Body Corporate
i.
Persons
ii.
Body Corporate
an individual,
ii.
iii.
a company,
iv.
a firm,
v.
an association of persons or a
body of individuals, whether
incorporated or not,
vi.
vii.
preceding sub-clauses.
Applicability
1. Public Companies
1. Public Companies
Interest rate on
Loans
Penalty