Unit 2

Q1: Charge
Answer
Introduction: A company's borrowings are often backed by securities, on the strength
of which loans are given by the banks and financial institutions. The security is given for
securing loans or debentures by way of mortgage on the assets of the company when
the Charge is created. The Companies Act, 2013 covers the provisions relating to
registration, modification, satisfaction of Charges, consequences of failure in
registration inclusive of delay in registration.
Meaning: A charge means an interest or right which a lender or creditor obtains in the
property of the company by way of security that the company will pay back the debt.
Definition
AS PER COMPANIES ACT, 2013: Section 2(16) of the Companies Act, 2013 defines
charges so as to mean an interest or lien created on the property or assets of a
company or any of its undertakings or both as security and includes a mortgage.
AS PER TRANSFER OF PROPERTY ACT, 1882: According to Section 100 where immovable
property of one person is by act of parties or operation of law made security for the
payment of money to another; and the transaction does not amount to a mortgage, it
is called charge.
TYPES OF CHARGES
1, FIXED CHARGES: a) EXISTING Immovable property b). EXISTING movable property
2. FLOATING CHARGES: a) Existing+Future Purchase Immovable property b)
Existing+Future Purchase movable property
1. Fixed Charge: A Charge is called fixed or specific when it is created to cover assets
that are associated and definite or are capable of being ascertained and defined,
at the time of creating the Charge e.g. land, building or plant, and machinery. A
fixed Charge, therefore, is security in terms of certain specific property and the
company gives up its right to dispose of that property until the Charge is
satisfied. In case of winding up/liquidation of the company, a specific Charge
holder will be placed in the highest-ranking class of creditors.
2. Floating Charge: A floating Charge is not attached to any definite property but
covers property which is fluctuating type e.g. stock-in-trade. A floating Charge is
on a class of assets in present and in future which in the ordinary course of
business is changing from time to time and leaves the company free to deal with
the property as it sees fit until the holders of Charge take steps to enforce their
security. The crux of a floating Charge is that the security remains inactive until it
is fixed or crystallised. The assets are mortgage in such a way that the mortgagor
i.e. the company can deal with them without the concurrence of the mortgage.
Case Law: Maturi U. Rao v. Pendyala A.I.R: When the floating charge crystallizes
it becomes fixed and the assets comprised therein are subject to the same
restrictions as the fixed charge.
Illingworth & Another v. Holdsworth& Another: A floating charge is ambulatory
and shifting in its nature hovering over and so to speak floating with the property
which it is intended to affect until some event occurs or act is done which
causes it to settle and fasten on the subject of the charge within
 its reach and grasp.
(CONVERESION OF FLOATING CHARGE IN TO FIXED CHARGE)
Meaning of crystallization
‘Crystallization’ means that the right of the company to deal in the assets, which are
subject of floating charge, comes to an end.
Cases in which crystallization Takes place
(a) Where the company is ordered to be wound up.
(b) Where the company ceases to carry on business.
(c) Where the company makes a default in payment of interest or
repayment of principal to the charge holder in accordance with the terms of the
charge, and the charge holder brings an action to enforce his security.

Type of Charges to be registered: types of charges to be registered. Companies Act,

2013 : Charges requiring registration:
A company must file within 30 days of creation of a charge with the Registrar complete
details of the charge together with the instrument of charge or its verified copy in
respect of certain charges. Otherwise the charge will be void. This does not mean that
the creditors cannot recover their dues. It merely means that the benefit of the charged
security will not be available to them. The following charges are compulsorily
registrable :-
# A charge for the purpose of securing any issue of any debentures
# A floating charge
# A charge on uncalled share capital
# Charge on calls made but not paid
# A charge on any immovable property
# A charge on ship
# A charge on book debts of the company
# A charge on goodwill or on patent or on license under the patent or on trademark or
copyright or on the license under the copyright
# A charge other than a pledge on any movable property of the compan
Registration of charges
o Section 77 to 87 of the Companies Act 2013 provides the procedure for the
registration of Charges.
o Every company, creating or modifying a Charge on its property, assets or
undertakings, whether it is tangible or intangible situated within or outside India,
shall register the particular of Charge with the Registrar within 30 days of such
creation by applying Form No. CHG-1 (for other than debentures) and Form No.
CHG-9 (for debentures).
o Along with the Form CHG-1 or CHG-9 as the case may be, the documents such as
a certified true copy of every instrument evidencing creation or modification of
the Charge, particular of other Charge holders in case of joint Charge and
consortium finance, and in case of acquisition of property which is already
subject to Charge instrument evidencing such acquisitions, are filed.
o Payment of fees can be made online in accordance with Annexure B of
Companies (Registration offices and fees) Rules, 2014.
Effect of non registration of charge:
 o As per Section 77(3) If charge is not registered with ROC, the charge shall not be
taken into account by the liquidator or any other Creditor. [The words are
Registered’ and not ‘filed’. Thus, mere filing of charge with Registrar would not
be sufficient. It has to be actually registered by ROC and certificate of registration
should be issued.
o However, this is so only if company is under winding up. Otherwise, contract or
obligation for repayment of the money secured by charge is there even if charge
was not registered. 77(4)
o The charge shall be void against the liquidator appointed under this Act or the
Insolvency and Bankruptcy Code, 2016, as the case may be and any creditor of
the company. Thus, in case of liquidation, the unregistered charge holder
becomes an unsecured creditor.
o The company shall be liable for the repayment of the money secured by the
charge.
o The money secured by the charge becomes payable immediately.
o Company shall be punishable with fine minimum 1 lack and max. 10 lack.
o Officer in default liable to imprisonment up to 6 month or with a fine min.
25000/- max. 1 lack or with both.

PUNISHMENT FOR CONTRAVENTION SECTION 86: If any company is in default in

complying with any of the provisions of this Chapter, the company shall be liable to a
penalty of five lakh rupees and every officer of the company who is in default shall be
liable to a penalty of fifty thousand rupees. (COMPANIES AMENDMENT ACT 2020) If
any person wilfully furnishes any false or incorrect information or knowingly
suppresses any material information, required to be registered in accordance with the
provisions of section 77, he shall be liable for action under section 447

Difference between Fixed Charge and Floating Charge

Sr.
No. Fixed Charge Floating Charge
Fixed charge is created on specific assets which may
1. be movable or immovable. Floating charge is created on the entire class or assets.
It is identifiable with respect to the property & vice-
2. versa. It is not identifiable with respect to the floating charge.
3. It is static nature. It is dynamic nature.
4. Registration of fixed charge is voluntary. Registration of floating charge is compulsory.
The floating charge may be created on existing &
The fixed charge is created on the existing and determinable property,
5. determinable property. And future & indeterminable property.
It does not clutch the property on which it is created. It
6. It is clutches the property on which it is created. floats over the property.
The company cannot deal with a property, which is The company can deal with all the properties, which are
7. subject to a fixed charge. subject to a floating charge.
It, upon the occurrence of certain events may become a
8. It shall not become a floating charge. fixed charge.
Fixed charge shall get priority over the floating
9. charge. Floating charge shall not get any priority over fixed charge.
Q2. Mortgage and types of Mortgage
Answer
Introduction: A Mortgage is a kind of security given by borrower who is the debtor
(mortgagor) for repayment of loan to the lender who is the creditor (mortgagee). The
object of a mortgage is to secure the debt or other obligation. It is a transfer of limited
interest in property.
Meaning: A Mortgage is transfer of an interest in immovable property. Mortgage is a
transfer, but not the transfer of ownership rights and the main purpose of mortgage is
a transfer of an interest to secure the payment of money advanced as loan
Definition:
According to section 58 (a) of transfer of Property Act, A mortgage is transfer of interest
in specific immovable property for purpose of securing:
1. The payment of money advanced by way of loan.
2. An existing or future debt, or
3. The performance of an engagement which may give rise to a pecuniary liability.
Parties
The transferor is called a mortgagor, the transferee a mortgagee and the instrument by
which the transfer is effected is called a mortgage deed
Elements Of A Mortgage:
The chief elements of a motgage are:
 Two parties are there.
 Transfer of an interest.
 Interest made in specific immovable property.
 Transfer must be to secure the payment of a loan or to secure the performance
of a contract.
Kinds Of Mortgage:
The nature of right transferred in mortgage depends upon the form or kind of the
Mortgage.
Section 58 of TPA there are six kinds of mortgage.
 Simple Mortgage [sec. 58(b
 Mortgage by conditional sale[ sec. 58(c)]
 Usufructuary Mortgage [sec. 58(d)]
 English Mortgage [sec. 58(e)]
 Equitable Mortgage [sec. 58(f)]
 Anomalous Mortgage [sec.58(g)]
1. Simple Mortgage: In a simple mortgage, the mortgagor retains the possession of
the property with himself, covenants personally to pay the mortgage money, and
agrees that in default of payment the mortgagee shall have the right of realising
the debt by causing the property to be sold under an order of court. In this only
interest in transferred.
 Hence the following 3 conditions are necessary for single mortgage:
a)The mortgagor retains the possession of mortgaged property
b)The mortgagor must personally undertake to pay the mortgage money
c)The parties must expressly or impliedly agree that in the event of mortgagor
failing to pay according to his contract, the mortgagee shall have a right to cause
the mortgage property to be sold.
2. Mortgage By Conditional Sale: In Mortgage ostensibly sells the mortgaged
property, on condition that: On default of payment og mortgage- money on a
certain date, the sale is to become absolute On such payment being made, the
sale is to become void, or the buyer is to transfer the property to the seller.
This is, therefore a mortgage in which the ostensible sale is conditional and
intended simply as a security for the debt.
3. Usufructuary Mortgage: In usufructuary mortgage, the property is given as a
security to the mortgagee, who is let into possession and permitted to repay
himself out of rent and profits of such property. The possession is given to the
mortgagee or the mortgagor must expressly or impliedly binf himself to deliver
possession. The mortgagor will not be personally liable unless there is a distinct
agreement to the contrary.
The essential conditions of usufructuary mortgage are:
 Delivery of possession or an express or implied undertaking on the part of
mortgagor to deliver it
 The enjoyment of usufruct by the mortgagee until all his dues under the
mortgagee are paid off;
 The mortgagor does not incur any personal liability to repay the money;
 There being no personal liability to pay there is no forfeiture and remedies by
way of foreclosure or sale not open to the mortgagee.
4. English Mortgage: An English mortgage is a transaction in which the mortgagor
binds himself to repay the mortgage money on a certain date, and transfer the
mortgaged property absolutely to the mortgagor, but subject to the proviso that
he will retransfer it to the mortgagor upon the payement of the debt.
o The three essentials of this form of mortgage are:
That the mortgagor should bind himself to repay the mortgage money on
certain day;
o That the property mortgaged should be absolutely transferred to the
mortgagoee;
 That such absolute transfer should be made subject to the proviso that the
mortgagee will reconvey the property to the mortgagor on payment by him of
the mortgage money on the day on which the mortgagor bound himself to repay
the same.
5. Equitable Mortgage: A Mortgage by deposite of title deed� is called as Equitable
Mortgage.Physical delivery of documents by the debtor to the creditor is mode of
deposit. There may be constructive delivery also.
 The essentials of Equitable mortgage are:
o Delivery of title deeds
o Existence of the debt

o Specified �Delivery� means delivery of actual possession as aresult of the

agreement.
There is no writing or other formalities are required. Thus,, for a valid mortgage
by deposit of title deed, it is not essential to put the deed into writing, but there
must be an intension to take the deed as aa security for the debt and if there is
such intention, it is sufficient to create a valid mortgage by deposit f title deed
even if the deed is not in writing.
6. Anomalous Mortgage: Section 58(g) of T.P.Act defines Anomalous Mortgage. It is
composite mortgage formed by combination of two or more of primary type of
mortgage. In this class of mortgage, the rights of the parties are governed by the
terms of ttthe instrument. A mortgage usufructuary by conditional sale is
Anomalous mortgage as here mortgage is in possession as a usufructuary
mortgage for a fixed period and if debt is not discharged at the expiry of period,
he gets all rights of mortgage by conditional sale
Case Laws:
1. Thumbuswamy v. Hossain Rowthen: The Privy Council in the observed that the
essential characteristic of a mortgage is that on breach of condition, the sale
deed would be executed itself and the transaction would become an absolute
sale without any kind of accountability between the parties.
2. In Ismail Kharti v/s Muljibhai Brahmabhatt, the first part of the document spoke
of an outright sale, whereas the second part contained provision for redemption
of the land.
3. Comparison Chart

BASIS FOR
MORTGAGE CHARGE
COMPARISON

Meaning Mortgage implies the Charge refers to the security

transfer of ownership for securing the debt, by way
interest in a particular of pledge, hypothecation and
immovable asset. mortgage.

Creation Mortgage is the result of Charge is created either by

the act of parties. the operation of law or by the
act of the parties concerned.

Registration Must be registered When the charge is a result

under Transfer of of the act of parties,
Property Act, 1882. registration is compulsory
otherwise not.
 BASIS FOR
MORTGAGE CHARGE
COMPARISON

Term Fixed Infinite

Personal Liability In general, mortgage No personal liability is

carries personal liability, created, however, when it
except when excluded comes into effect due to a
by an express contract. contract, then personal
liability may be created.

Conclusion: The concept of mortgage is one of the important concepts under the
Transfer of Property Act, 1882 section 58 as it helps in securing the debt to the
mortgagor and also helps in redeeming the property as soon as the mortgagor pays
back the amount due to the mortgagee.

Q3: Debenture and types

Answer:
Introduction
A debenture is a note of promise of a long term corporate bond, in the finance world,
that is usually backed by the reputation and integrity of borrowers and also specific
assets of borrowers. The borrower is usually a company or a firm, and the lender is the
public.
Meaning debentures are nothing but another variant of debt instruments that rely
primarily on the general creditworthiness of an issuer to raise borrowed capital. Both
public and private sector companies issue such a type of corporate bond to secure
capital. Just like all other types of bonds, debentures are also documented in an
indenture.
Definition: “debenture” includes debenture stock, bonds or any other instrument of a
company evidencing a debt, whether constituting a charge on the assets of the
company or not Provided that— (a) the instruments referred to in Chapter III-D of the
Reserve Bank of India Act, 1934; and(b) such other instrument, as may be prescribed by
the Central Government in consultation with Reserve Bank of India, issued by a
company, shall not be treated as debenture;
DEBENTURES CAN BE CLASSIFIED AS
1. On the basis of convertibility debentures can be classified as
a)Partly Convertible Debentures: When a part of debentures is to be converted into
Equity shares at some future period of time by the issuer are called as partly
convertible debentures.
b)Fully Convertible Debentures: When the debentures are fully to be converted into
Equity shares at some future period of time by the issuer are called as partly
convertible debentures.
c)Non-Convertible Debentures: These debentures cannot be converted into Equity
shares.
2. On the basis of security debentures can be classified as
a) Secured Debentures: These instruments are secured by a charge on the fixed assets
of the issuer company. So, if the issuer fails on payment of the principal or interest
amount, his assets can be sold to repay the liability to the investors.
B)Unsecured Debentures: Unsecured debentures are issued by the Company without
creation of charge over the assets of the Company. In case a Company is unable to pay
the principal or interest on due date, these debentures do not offer any protection to
the debenture holders.
3. On the basis of Redemption debentures can be classified as
Redeemable Debentures: When the debentures are issued with a condition to redeem
at a fixed date or upon demand are called as redeemable debentures.
Irredeemable Debentures: No Company can issue irredeemable debentures
4.On the basis of Registration debentures can be classified as
Registered Debentures: Registered debentures are made out in the name of a particular
person, whose name appears on the debenture certificate and who is registered by the
company as holder on the Register of debenture holders.
Bearer debentures: Bearer debentures on the other hand, are made out to bearer, and
are negotiable instruments, and so transferable by mere delivery like share warrants.
Conditions for Issue of Debenture
Provisions of Companies Act 2013 and Companies (Share Capital and Debentures)
Rules, 2014
· As provided in Section 71(2) , no company is entitled to issue debentures which carry
voting rights. Secured debentures shall adhere to the conditions prescribed.
· Section 71(3) says that subject to certain prescribed terms and conditions secured
debentures can be issued by a company.
·Rule 18(1)[4] prescribes following conditions
(1) The company shall issue secured debentures , provided that the date of redemption
does not exceed 10 years from the date of issue. The exception to this are companies
involved in setting up infrastructure projects can exceed up to 30 years but not beyond
that.
(2) The issue of debenture shall be secured by creation a charge on the assets and
properties of the company, value of which shall be substantial enough for the due
repayment of the principal amount of the debentures along with the interest on it.
(3) It is mandatory for the company to appoint a debenture trustee[5]prior to issue of
letter of offer or prospectus for subscription of its debentures. The company shall
within 60 days of allotment of debenture, execute a trust deed in to prevent injustice
and protect the interest of the debenture holders.
(4) In the case where any issue of debenture by a company which is fully secured by
guarantee given by Central government or state government or both then there is no
requirement for creating charge on the assets of the company.
Issue of Debentures
  The manner of issuing of debentures is usually similar to that of issuing share, it
is through prospectus inviting applications for debentures, the money is to be
paid in installments on application, allotment and on specific dates. Debentures
can, be issued in three ways.
 At par: When the amount collected for it is equal to the nominal value of
debentures ,it is said to have been issued at par. e.g. the issue of debentures of
Rs. 300/- for Rs. 300/-
 At Discount: When the amount collected is less than the nominal value,
debenture is said to have been issued at discount. For e.g., issue of debentures of
Rs. 300/- for Rs. 270/-. The difference of Rs. 30/- is the discount and is called
discount on issue of Debentures. This discount on issue of debentures is a capital
loss.
 At Premium: A debentures is said to be issued at a premium , when the price
charged is more than its nominal value. e.g., issue of debentures of Rs. 300 each
for Rs. 320, the excess amount over the nominal value i.e., Rs. 20 is the premium
on issue of debentures. Premium received on issue of debentures is a capital
gain. This Premium on issue of debentures could not be used for distribution of
dividend. Premium on debentures reflected under Surplus and the head Reserves
on the liability side of the Balance Sheet.
Salient Features of Debentures
Some of the salient features of debentures are as follow:
1. It is an acknowledgement of the debt;
2. It is issued by the company under its common seal;
3. Debentures can be both secured or unsecured;
4. The rate of interest and the date of payment is pre-determined;
5. Debentures issued are freely transferrable by debenture holders;
6. Debenture holders do not get any voting right in the company;
7. Interest payable to the debenture holders are charged against the profits of the
company.

Q4: Inter-Corporate Loan

Answer:
Introduction: Any company is authorized to provide loans, investments, guarantees,s,
and securities, to other companies or corporate bodies but having full consent of the
board or that of the shareholders.
Meaning: A company can give loans and guarantees, acquire securities or make
investments in another company or body corporate with the consent of the board or
shareholders. Such loans given by a company to other companies or body corporates
are known as inter-corporate loans. When a company invests in another company, it is
known as inter-corporate investment.
Section 186 of the Companies Act, 2013 (‘Act’) regulates inter-corporate loans and
investments. A company can give loans and guarantees, acquire securities or make
investments only according to the provisions laid down in Section 186 of the Act.
Objectives:
There are various objectives of the inter-corporate loan. Inter-corporate loans are loans
made from one business unit of a company to another.
This is usually for the following reasons and objectives:
 To shift cash to a business unit to avoid the shortfall in cash.
 To shift cash into a business unit (usually corporate) where the funds are
aggregated for investment purposes.
 Shifting cash within business units that use a common currency, rather than
sending in funds from a foreign location that will subject to exchange rate.
The requirement of Inter corporate loans:
The inter-corporate loan serves a variety of purposes. Loans provided from one
business unit of a firm to another are known as inter-corporate loans. This is frequently
done for the following reasons and goals:
 To transfer cash to a company unit and to avoid a cash shortage.
 To move money into a business unit (typically corporate) where it will be pooled
for investment.
For the following reasons, an inter-corporate loan is particularly beneficial:
 There is no need to go through the elaborate and tedious process like a bank loan
which requires a lot of documentation and approvals.
 Cash is available to any corporation on very short notice.
 The payback terms are substantially more favourable.
What Is an Investment and Investment Company?
The Companies Act of 2013 has a section 186 that deals with "credit and investments
by the firm." Approval matrices, monetary threshold, archiving, exemption from
compliance requirements, guarantee, security and limits on lending or investing in
some other firms. Rules promulgated under Section 186 of the Act also apply.
PROVISIONS FOR INTER CORPORATE LOAN Article on Section 186
Article on Section 186 In this article we are going to discuss provisions of Section 186 of
Companies Act 2013, under this article we are discussing about Loan and investment by
company and what are the conditions to give such loans and investments. This section
is applicable to both Private as well as Public companies.
Section 186: Loan and investment by company
Sections 186(1):Without prejudice to the provisions contained in this Act, a company
shall unless otherwise prescribed, make investment through not more than two layers
of investment companies:
Provided that the provisions of this sub-section 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.
Sections 186(2): No company shall directly or indirectly —
(a) give any loan to any person or other body corporate ;
(b) give any guarantee or provide security in connection with a loan to any other body
corporate or person; and
(c) acquire by way of subscription, purchase or otherwise, the securities of any other
body corporate,
exceeding sixty per cent. of its paid-up share capital , free reserves and securities
premium account or one hundred per cent. of its free reserves and securities premium
account, whichever is more.
Explanation.— For the purposes of this sub-section, the word “person” does not
include any individual who is in the employment of the company.
APPROVAL FROM MEMBERS [SECTION 186(3):
Where the aggregate of the loans and investment so far made, the amount for which
guarantee or security so far provided to or in all other bodies corporate along with the
investment, loan, guarantee or security proposed to be made or given by the Board,
exceed the limits specified under sub-section (2), no investment or loan shall be made
or guarantee shall be given or security shall be provided unless previously authorised
by a special resolution passed in a general meeting:
Provided that where a loan or guarantee is given or where a security has been provided
by a company 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, the requirement
of this sub-section shall not apply:
Provided further that the company shall disclose the details of such loans or guarantee
or security or acquisition in the financial statement as provided under sub-section (4)
DISCLOSURE OF PARTICULARS OF LOAN, GUARANTEE GIVEN AND SECURITY
PROVIDED [SECTION 186(4)]
Section 186(4) of the Act provides that the Company shall disclose following details to
the members in the financial statement.
– the full particulars of the loans given,investment made or guarantee given or security
provided.
– the purpose for which the loan or guarantee or security is proposed to be utilised by
the recipient of the loan or guarantee or security. The notice of the general meeting for
passing resolution shall indicate that
(a) The limits that will be required in excess of the prescribed limits involved in the
proposal; (b) The particulars of the body corporate in which the investment is proposed
to be made or to which the loan or guarantee or security proposed to be given. (c) The
purpose of the investment, loan, guarantee or security; (d) The source of funding for
meeting the proposal; and (e) Other details as may be specified.
APPROVAL OF BOARD AND PUBLIC FINANCIAL INSTITUTION [SECTION
186(5)]
If any term loan from a public financial institution is subsisting, then:
1. No prior approval of public financial institution is required, if the inter –
corporate loans/investments and other loans is only up to 60% or 100%; as
the case may be; provided there is no default in repayment of loan
installments or payment of interest thereon.
2. If the inter – corporate loans/investments and other loans is beyond 60%
or 100%, as the case may be, then prior approval of the public financial
institution is required in all cases
Restriction on taking loan on the companies registered with SEBI under
section 12 of the SEBI Act.(186(6)
Section 186(6) provides that no company, which is registered under section 12 of the
SEBI Act, 1992 and covered under such class or classes of companies as may be
prescribed, shall take inter-corporate loan or deposits exceeding the prescribed limit
and such company shall furnish in its financial statement the details of the loan or
deposits.
SECTION 186(7) INTEREST RATE
No loan shall be given under this section 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.
Section 186(8) Restriction on providing loan, guarantee or security in case of
default committed in repayment of deposit and/or interest thereon
Section 186(8) provides that no company which is in default in the repayment of any
deposits accepted before or after the commencement of this Act or in payment of
interest thereon, shall give any loan or give any guarantee or provide any security or
make an acquisition till such default is subsisting.
Register of Loans, investment, guarantee or security Section 186(9) (10) read
with Rule 12(1)
Every company giving loan or giving a guarantee or providing security or making an
acquisition of securities shall, from the date of its incorporation, maintain a register in
the Form MBP-2 and enter therein separately, the particulars of loans and guarantees
given, securities provided and acquisitions made as aforesaid.
Entries to be made in the register within 7 days
Rule 12(2) provides that entries in the register shall be made chronologically in respect
of each such transaction within seven days of making such loan or giving guarantee or
providing security or making acquisition
Place of keeping and preservation of the Register
Rule 12(3) provides that the register shall be kept at the registered office of the
company. The register shall be preserved permanently and shall be kept in the custody
of the secretary of the company or any other person authorised by the Board for the
purpose.
186(9) Inspection of the Register
The register referred in section 186(9) shall be kept at the registered office of the
company and
 Shall be open to inspection at such office; and
 Extracts may be taken there from by any member, and copies thereof may be
furnished to any member of the company on payment of such fees as may be
prescribed.
Non-Applicability of section 186(11):
This section {except sub-section (1)} does not apply to loans made or guarantee or
security provided or (investment) by
 A banking company
 An insurance company
 A housing finance company
  A company engaged in the business of financing of companies or of providing
infrastructural facilities.
This section {except sub-section (1)} does not apply to any investment made by
 A company whose principal business is the acquisition of shares, stock,
debentures or other securities (Investments Company)
 A Non-Banking Financial Company (NBFC).
 while making investments in the ‘Rights Shares’ under Section 62(1)(a) of the
Companies At, 2013. However, at the time of further investments, investments
already made in Rights Shares shall be taken into account
As per section 186(12), CG may make rules in respect of this section
As per section 186(13) in case of contravention of this section then Fine on company
Rs. 25000/- which may extend to Rs. 500000/- and Every officer in default
imprisonment for a term which may extend to 2 years and fine Rs. 25000/- which may
extend to Rs. 100000/-. Conclusion: As per above discussion its clear that inter
corporate borrowing may be possible only if provisions of section 186 are followed. In
case of non-compliance of the above stated provisions every officer in default has to
face dual penalties i.e. imprisonment as well as fine, and fine for company is also there.
Hence companies shall be very careful while complying with inter corporate loans.
MEANING OF INVESTMENT:I
 Investment for the purposes of section 186(1) would mean as used in section
 186(2)(c) of the Act, 2013. Thus the following will be counted as “investments”: –
Subscription or purchase of shares – Subscription or purchase of share warrants –
Subscription or purchase of debentures bonds or similar debt securities
The following will not be counted as investments: – Making of loans or advances – Any
other financial transactions such as leases, purchase of receivables, or other credit
facilities
Conclusion: As per above discussion its clear that inter corporate borrowing may be
possible only if provisions of section 186 are followed. In case of non-compliance of the
above stated provisions every officer in default has to face dual penalties i.e.
imprisonment as well as fine, and fine for company is also there. Hence companies shall
be very careful while complying with inter corporate loans.