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Section 187 shall be applicable to all type of Companies. It applies on Private as well as Public Limited Companies.

a) As per Section 187(1) 'All investments made or held by a company in any property, security or other asset shall be made and held by it in its own name.'

As per sub section 1, Company can't make any investment in Property, asset or security in name other than its own name i.e. benami.

As the word property and asset not defined under this section, however, these words having wide scope. These includes:

  • Investment in capital of Partnership and LLP
  • Investment in movable or immovable assets
  • Investment in Trademark, patent any other immovable property
Section 187: Investment of Company to be held in its own name

FIRST EXEMPTION FROM SUB SECTION 1

b) Provided that the company may hold any shares in its subsidiary company in the name of any nominee or nominees of the company, if it is necessary to do so, to ensure that the number of members of the subsidiary company is not reduced below the statutory limit.

As per proviso Company can hold shares in subsidiary company in the name of nominee subject to only fulfilment of requirement of minimum no. of members in Subsidiary Company.

  • Word 'Subsidiary' in proviso should be read as 'Wholly own subsidiary'.
  • Exemption allowed only in case when company investing in securities of WOS and need to designate nominee for 1 share to fulfil the requirement of minimum number of members i.e. 2 in Private and 7 in Public.
  • Nominee should not hold more than 1 share in above mentioned exemption.
  • Company have to separately comply with provision of section 89 for declaration by beneficial owner and registered owner.
 

THERE ARE SOME OTHER EXEMPTIONS FROM PROVISION OF SUB SECTION 1 i.e.

187(2)(a) - Collection of Dividend & Interest: from depositing with a bank, being the bankers of the company, any shares or securities for the collection of any dividend or interest payable thereon.

The prohibition under sub-section (1) does not apply if a company deposits with a bank, being the bankers of the company, any shares or securities for the collection of any dividend or interest payable thereon.

187(2)(b) - To facilitate Transfer: from depositing with, or transferring to, or holding in the name of, the State Bank of India or a scheduled bank, being the bankers of the company, shares or securities, in order to facilitate the transfer thereof:.

But if within six months from the date on which the shares or securities are transferred by the company to, or are first held by the company in the name of, the State Bank of India or a scheduled bank as aforesaid, no transfer of such shares or securities takes place, the company shall, as soon as practicable after the expiry of that period, have the shares or securities re-transferred to it from the State Bank of India or the scheduled bank or, as the case may be, again hold the shares or securities in its own name.

c) Sub Section 2 'Nothing in section 187 deemed to prevent a Company'

187(2)(c) - Transfer as Security: 'from depositing with, or transferring to, any person any shares or securities, by way of security for the repayment of any loan advanced to the company or the performance of any obligation undertaken by it'

Company can transfer or deposit its shares or security (means where company has invested) to any person for following purpose:

  • Security for repayment of any loan advanced to the Company
  • Security for the performance of any obligation undertaking by it.

187(2)(d) - Beneficial Owner: from holding investments in the name of a depository when such investments are in the form of securities held by the company as a beneficial owner. Company can hold share as beneficial owner and register depository as registered owner on its behalf. Company have to comply with the relevant provision of section 89.

 

Register: If Company exercise Clause (d) then company have to maintain a register in MBP-3.

  • Such Registers shall be maintained at registered office of the Company.
  • Such register shall be open to inspection by any member or debenture-holder of the company without any charge during business hours subject to such reasonable restrictions as the company may by its articles or in general meeting impose.
  • The company shall enter chronologically, the particulars of investments in shares or other securities beneficially held by the company but which are not held in its own name and the company shall also record the reasons for not holding the investments in its own name and the relationship or contract under which the investment is held in the name of any other person.
  • The Registers shall be preserved permanently.
  • Such register shall be kept in custody of Company Secretary or if not having CS then in custody of any Director or any other officer authorized by Board for the purpose.

QUICK BITES FOR SECTION 187

1. What is the meaning of Investment in 187?

Investment includes:

  • Property and Assets
  • Securities

2. In case of holding of shares by company as beneficial owner any such specific compliances required by company?

In such Case Company have to comply with the provisions of Section 89 declaration as beneficial owner.

3. In proviso of Sub section 1, what is the meaning of word Subsidiary?

In proviso the word 'Subsidiary' shall be read as 'Wholly owned Subsidiary'. As the given condition of proviso shall be applicable only in case of WOS.

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Category Corporate Law, Other Articles by - CS Divesh Goyal 



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