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Companies Act, 2013--Loans and Investments

Loans and Investments by a Company : Under the Purview of Companies Act, 2013

Sanjay Atre

Loans and investments by a company is a much wider term under the Companies Act, 2013 as of that in Companies Act, 1956. One of the significant change introduced under Companies Act, 2013 is that it also covers loan to any person within the ambit of loan and investment by company, however, under Companies Act, 1956, only inter-corporate loans and investments were covered. The learned author discusses here various provisions as laid down in Companies Act, 2013 which are to be kept in mind while making such kind of transactions.

1. Introduction

Companies usually park their surplus funds by way of loans and investments to fetch good returns. With a view to regulate the loans and investments of surplus funds by a company, certain provisions have been laid down in the Companies Act, 2013. Section 186 provides the manner in which and limits up to which a company shall give any loan or guarantee or provide any 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. Hence, it gives great flexibility to the companies in the matter of making use of their surplus funds.

2. Prohibition on making investment through more than two layers of investment companies

Section 186(1) restrains a company from making investment through more than two layers of investment companies. However, these provisions 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.

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