Section 186 Companies Act: Loan & Investment Procedure

Khushboo Sharma

Khushboo Sharma

Published on: Sep 8, 2025

Priya Gandhi

Updated on: Sep 8, 2025

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Introduction

Section 186(2) of the Companies Act, 2013, restricts a company from directly or indirectly:

Giving any loan to any person or other body corporate,
Providing any guarantee or security in connection with a loan to any person or body corporate, and
Acquiring, by subscription, purchase, or otherwise, securities of any other body corporate,

in excess of 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 higher.

However, subject to compliance with prescribed conditions, a company may advance loans, provide guarantees, or acquire securities of other entities within the prescribed limits.

This procedure outlines the process for granting loans and making investments by the Company, in accordance with applicable laws, including the Companies Act, 2013, and relevant rules and regulations.

Applicable Provisions

Section 96, 100, 101, 117, 173, 186 of Companies Act, 2013
Rule 11, 12, 13 of Companies (Meetings of Board and its Powers) Rules, 2014
Clause 1, 4, 7 of Secretarial Standard on Board Meeting (SS-1)
Clause 1, 4, 17 of Secretarial Standard on General Meeting (SS-2)
Regulation 30, 44 & 46 of SEBI(LODR) Regulations, 2015

Mandatory Requirements

Company intending to give loan or any guarantee or provide any security or make an acquisition shall:

Pass special resolution at a general meeting if loan or guarantee or providing any security or acquisition exceeds:
- 60% of its paid-up capital, free reserves and security premium account or
- 100% of its reserves and security premium whichever is more.
Give full particulars of the loans or guarantees given or security provided, in the explanatory statement to the notice of such general meeting.
Prior approval from the public financial institutions where the aggregate loan, investment, guarantee and security proposed exceeds section 186(2) limits and there is default in repayment of loan or interest thereon.

Procedure

Conditions to Grant Loans:
Before granting any loan, providing any guarantee or security, or making an investment, a company must ensure compliance with the following conditions:
- Company shall abstain to:
  - Make investment through more than two layers* of investment companies
  - Give any loan or guarantee or provide any security or make an acquisition, if it is in default in the repayment of any deposits or interest thereon
  - Give any loan or guarantee or provide security at interest rate lower than the prevailing yield of 1, 3, 5 or 10 year Government Security closest to the tenor of the loan.
- Company registered as an intermediary with the Securities and Exchange Board of India (SEBI), and also classified by the Central Government, shall not accept or provide any inter-corporate loans or deposits beyond the limits prescribed under the applicable SEBI regulations governing its registration.
Convene a Meeting of Board of Directors:
- Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
- Attach Agenda, Notes to Agenda and Draft Resolution with the Notice, for grant of loan to Directors.
- Hold a meeting of Board of Directors and pass a Board Resolution
  - To consider and approve the proposal to make any investment, giving loan and guarantee and providing security
  - To fix the day, date, time and venue of the General Meeting and to approve the draft notice convening the General Meeting along with explanatory statement annexed to the notice as per requirement of the Section 102 of the Companies Act, 2013
  - Explanatory statement to the notice for the relevant general meeting shall disclose the full particulars of the loans given, or guarantee given or security provided
  - To authorize the Director or Company Secretary to sign and issue notice of General Meeting
  - To delegate authority to Company Secretary or any one director of the company to sign, certify and file the required form with Registrar of Companies and to do all such acts and deeds as may be necessary to give effect to the Board/Members decision.
- Listed Company shall submit the disclosure of outcome of Board Meeting to the Stock Exchange as soon as reasonably possible but not later than 30 minutes* from the date of the Board Meeting and post the same on the website of the Company within 2 working days.
- Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Please refer to the Procedure for Conducting Board Meeting for further details.]
Approval from Public Financial Institutions:
Company shall obtain prior approval from the concerned Public Financial Institution (PFI) if any loan is subsisting from such institution at the time of proposing a new loan, investment, guarantee, or security.

Note: Approval from the PFI shall not be required if:
- The aggregate of loans, investments, guarantees, and securities proposed is within the limits prescribed under Section 186(2) of the Companies Act, 2013, and
- There is no default in repayment of loan instalments or interest thereon to the said Public Financial Institution.
Convene General Meeting:
- Notice of General Meeting shall be given at least clear 21 days before the actual date of a General Meeting in writing, by hand or by ordinary post or by speed post or by registered post or by courier or by facsimile or by e-mail or by any other electronic means or a Shorter Notice can be issued with the consent of at least majority in number and 95% of such part of the paid up share capital of the company giving a right to vote at such a meeting in accordance with Section 101.
- Notice will be sent to all the Directors, Members, Auditors of Company, Secretarial Auditor, Debenture Trustees and to others who are entitled to receive the notice of the General Meeting.
- Notice shall specify the day, date, time and full address of the venue of the Meeting and contain a statement on the business to be transacted at the Meeting.
- Hold the General Meeting on fixed day and pass a Special Resolution if loan, guarantee or provide any security or acquisition is more than 60% of its paid-up capital, free reserves and security premium account or 100% of its free reserves and securities premium account.
- Listed Entity shall disclose the proceeding of General Meeting to the Stock Exchange within 12 hours from the conclusion of General Meeting and same shall be posted on the website of the company within 2 working days.
- Listed Companies shall submit to the stock exchange the details of the voting results within 2 working days from the conclusion of the meeting and post the same on the website of the Company.
- Prepare the minutes of General Meeting, get them signed and compile accordingly. [Please Refer the Procedure for Preparation and Signing of Minutes of General Meeting].
File Form MGT-14 with ROC:
Company shall file a copy of Board Resolution and Special Resolution passed in its duly convened Board meeting and General meeting in Form MGT-14 within 30 days of passing such resolution along with the requisite documents and fees, with the Registrar of Companies (ROC).
Disclosure of Particulars of Loan, Guarantee Given and Security Provided:
Company shall disclose the following details to the members in the financial statement:
- Full particulars of the loans given, investment made or guarantee given or security provided
- Purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security
- Loans, guarantees, securities, or acquisitions provided to its wholly owned subsidiary 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.
Register of Loan:
- Company shall maintain a register in Form MBP-2 containing particulars of loan or guarantee given or security provided or investment made.
- Entries shall be made within 7 days of making such loan or giving guarantee or providing security or making acquisition chronologically in respect of each such transaction.
- Company shall keep register at registered office and preserve it permanently
- Register shall be maintained under the custody of the Company Secretary or authorized person.

Exemptions from the provisions of Section 186

Section 186(1) of Companies Act, 2013, which states that loans, guarantees, or securities may be given without restrictions:
- Company may acquire 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
- Subsidiary company can have an 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
- Loan made, guarantee given or security provided by a banking or an insurance 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
- Acquisition made by:
  - Non-banking financial company registered under Chapter IIIB of the Reserve Bank of India Act, 1934 and whose principal business is acquisition of securities
  - Company whose principal business is the acquisition of securities and shares allotted in pursuance of section 62.
Section 186(3) of Companies Act, 2013, shall not apply:
- Where a loan or guarantee is given or security is provided by a company to its wholly owned subsidiary or joint venture company
- Where a holding company acquires securities of its wholly owned subsidiary by way of subscription, purchase, or otherwise.

Procedure for Loan and Investment by Company								
Introduction
Section 186(2) of the Companies Act, 2013, restricts a company from directly or indirectly:

Giving any loan to any person or other body corporate,
    Providing any guarantee or security in connection with a loan to any person or body corporate, and
    Acquiring, by subscription, purchase, or otherwise, securities of any other body corporate,

in excess of 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 higher.
However, subject to compliance with prescribed conditions, a company may advance loans, provide guarantees, or acquire securities of other entities within the prescribed limits.
This procedure outlines the process for granting loans and making investments by the Company, in accordance with applicable laws, including the Companies Act, 2013, and relevant rules and regulations. 
Applicable Provisions

Section 96, 100, 101, 117, 173, 186 of Companies Act, 2013
    Rule 11, 12, 13 of Companies (Meetings of Board and its Powers) Rules, 2014
    Clause 1, 4, 7 of Secretarial Standard on Board Meeting (SS-1)
    Clause 1, 4, 17 of Secretarial Standard on General Meeting (SS-2)
    Regulation 30, 44 & 46 of SEBI(LODR) Regulations, 2015

Mandatory Requirements
Company intending to give loan or any guarantee or provide any security or make an acquisition shall:

Pass special resolution at a general meeting if loan or guarantee or providing any security or acquisition exceeds:
        
            60% of its paid-up capital, free reserves and security premium account or 
            100% of its reserves and security premium whichever is more.
        
    
    Give full particulars of the loans or guarantees given or security provided, in the explanatory statement to the notice of such general meeting.
    Prior approval from the public financial institutions where the aggregate loan, investment, guarantee and security proposed exceeds section 186(2) limits and there is default in repayment of loan or interest thereon.

Procedure

Conditions to Grant Loans:
        Before granting any loan, providing any guarantee or security, or making an investment, a company must ensure compliance with the following conditions:
        
            Company shall abstain to:
                
                    Make investment through more than two layers* of investment companies
                    Give any loan or guarantee or provide any security or make an acquisition, if it is in default in the repayment of any deposits or interest thereon
                    Give any loan or guarantee or provide security at interest rate lower than the prevailing yield of 1, 3, 5 or 10 year Government Security closest to the tenor of the loan.
                
            
            Company registered as an intermediary with the Securities and Exchange Board of India (SEBI), and also classified by the Central Government, shall not accept or provide any inter-corporate loans or deposits beyond the limits prescribed under the applicable SEBI regulations governing its registration.
        
    
    
        Convene a Meeting of Board of Directors:
        
            Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
            Attach Agenda, Notes to Agenda and Draft Resolution with the Notice, for grant of loan to Directors.
            Hold a meeting of Board of Directors and pass a Board Resolution
                
                    To consider and approve the proposal to make any investment, giving loan and guarantee and providing security
                    To fix the day, date, time and venue of the General Meeting and to approve the draft notice convening the General Meeting along with explanatory statement annexed to the notice as per requirement of the Section 102 of the Companies Act, 2013
                    Explanatory statement to the notice for the relevant general meeting shall disclose the full particulars of the loans given, or guarantee given or security provided
                    To authorize the Director or Company Secretary to sign and issue notice of General Meeting
                    To delegate authority to Company Secretary or any one director of the company to sign, certify and file the required form with Registrar of Companies and to do all such acts and deeds as may be necessary to give effect to the Board/Members decision.
                
            
            Listed Company shall submit the disclosure of outcome of Board Meeting to the Stock Exchange as soon as reasonably possible but not later than 30 minutes* from the date of the Board Meeting and post the same on the website of the Company within 2 working days.
            Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Please refer to the Procedure for Conducting Board Meeting for further details.]
        
    
    
        Approval from Public Financial Institutions:
        Company shall obtain prior approval from the concerned Public Financial Institution (PFI) if any loan is subsisting from such institution at the time of proposing a new loan, investment, guarantee, or security.
        Note: Approval from the PFI shall not be required if:
        
            The aggregate of loans, investments, guarantees, and securities proposed is within the limits prescribed under Section 186(2) of the Companies Act, 2013, and
            There is no default in repayment of loan instalments or interest thereon to the said Public Financial Institution.
        
    
    
        Convene General Meeting:
        
            Notice of General Meeting shall be given at least clear 21 days before the actual date of a General Meeting in writing, by hand or by ordinary post or by speed post or by registered post or by courier or by facsimile or by e-mail or by any other electronic means or a Shorter Notice can be issued with the consent of at least majority in number and 95% of such part of the paid up share capital of the company giving a right to vote at such a meeting in accordance with Section 101. 
            Notice will be sent to all the Directors, Members, Auditors of Company, Secretarial Auditor, Debenture Trustees and to others who are entitled to receive the notice of the General Meeting. 
            Notice shall specify the day, date, time and full address of the venue of the Meeting and contain a statement on the business to be transacted at the Meeting. 
            Hold the General Meeting on fixed day and pass a Special Resolution if loan, guarantee or provide any security or acquisition is more than 60% of its paid-up capital, free reserves and security premium account or 100% of its free reserves and securities premium account.
            Listed Entity shall disclose the proceeding of General Meeting to the Stock Exchange within 12 hours from the conclusion of General Meeting and same shall be posted on the website of the company within 2 working days.
            Listed Companies shall submit to the stock exchange the details of the voting results within 2 working days from the conclusion of the meeting and post the same on the website of the Company.
            Prepare the minutes of General Meeting, get them signed and compile accordingly. [Please Refer the Procedure for Preparation and Signing of Minutes of General Meeting].
        
    
    
        File Form MGT-14 with ROC:
        Company shall file a copy of Board Resolution and Special Resolution passed in its duly convened Board meeting and General meeting in Form MGT-14 within 30 days of passing such resolution along with the requisite documents and fees, with the Registrar of Companies (ROC).
    
    
        Disclosure of Particulars of Loan, Guarantee Given and Security Provided:
        Company shall disclose the following details to the members in the financial statement:
        
            Full particulars of the loans given, investment made or guarantee given or security provided
            Purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security
            Loans, guarantees, securities, or acquisitions provided to its wholly owned subsidiary 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.
        
    
    
        Register of Loan:
        
            Company shall maintain a register in Form MBP-2 containing particulars of loan or guarantee given or security provided or investment made. 
            Entries shall be made within 7 days of making such loan or giving guarantee or providing security or making acquisition chronologically in respect of each such transaction. 
            Company shall keep register at registered office and preserve it permanently
            Register shall be maintained under the custody of the Company Secretary or authorized person.

Exemptions from the provisions of Section 186

Section 186(1) of Companies Act, 2013, which states that loans, guarantees, or securities may be given without restrictions: 
        
            Company may acquire 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
            Subsidiary company can have an 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
            Loan made, guarantee given or security provided by a banking or an insurance 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
            Acquisition made by:
                
                    Non-banking financial company registered under Chapter IIIB of the Reserve Bank of India Act, 1934 and whose principal business is acquisition of securities
                    Company whose principal business is the acquisition of securities and shares allotted in pursuance of section 62.                        
                
            
        
    
    Section 186(3) of Companies Act, 2013, shall not apply:
        
            Where a loan or guarantee is given or security is provided by a company to its wholly owned subsidiary or joint venture company
            Where a holding company acquires securities of its wholly owned subsidiary by way of subscription, purchase, or otherwise.

Companies Act, 2013

Procedure for Loan and Investment by Company

Khushboo Sharma

Priya Gandhi

Introduction

Applicable Provisions

Mandatory Requirements

Procedure

Exemptions from the provisions of Section 186

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