InterCompany Loan transactions between associate companies
This query is : Resolved
komal ameta
(Querist)
21 May 2025
Dear Experts,
A Comapny having 50% of sharieholding in both B & C Company.
We want to proceed with inter-company loan transactions between A, B & C in both directions.
Kindly help us with the applicability of section 186 or other sections applicatble.
Please reply in details to what limit which resolutions and forms are required.
Thank You
A Comapny having 50% of sharieholding in both B & C Company.
We want to proceed with inter-company loan transactions between A, B & C in both directions.
Kindly help us with the applicability of section 186 or other sections applicatble.
Please reply in details to what limit which resolutions and forms are required.
Thank You
12 August 2025
Applicability of Section 186 of the Companies Act, 2013
Section 186 governs loans and investments by companies and has certain key compliance requirements:
1. Applicability
Any loan given by Company A to B or C, or vice versa, or investment made by A in B or C, is covered under Section 186.
This includes:
Loan (principal and interest),
Guarantee or security provided,
Acquisition of securities (shares, debentures, etc.).
2. Limits
The aggregate of loans/investments made or guarantees/security provided cannot exceed 60% of paid-up share capital, free reserves, and securities premium account OR
100% of free reserves and securities premium account, whichever is more.
3. Approval & Resolutions
If the aggregate amount exceeds the above limits, prior approval of the Shareholders by Special Resolution is required.
If within limits, approval of the Board of Directors is sufficient.
Each transaction should be approved via a Board Resolution regardless of limits.
4. Forms to be Filed
Form MGT-7 (Annual Return) will capture details of loans and investments.
Form AOC-4 (Financial Statements) disclosure as per accounting standards.
Form CRA-2 (for creation/modification of charges) if loan is secured.
Form PAS-3 (if shares are issued as part of investment).
Form BEN-2 (to declare beneficial ownership where applicable).
5. Interest Rate & Terms
The terms of the loan should be on arm’s length basis especially for related parties.
Compliance with Transfer Pricing provisions (Section 92-92F) under Income Tax Act is also essential.
6. Other Compliances
Disclosure in Board’s report about the loan and investment.
Adherence to Accounting Standards and Ind AS 24 (Related Party Disclosures).
Ensure no contravention of RBI guidelines if companies are financial institutions.
Section 186 governs loans and investments by companies and has certain key compliance requirements:
1. Applicability
Any loan given by Company A to B or C, or vice versa, or investment made by A in B or C, is covered under Section 186.
This includes:
Loan (principal and interest),
Guarantee or security provided,
Acquisition of securities (shares, debentures, etc.).
2. Limits
The aggregate of loans/investments made or guarantees/security provided cannot exceed 60% of paid-up share capital, free reserves, and securities premium account OR
100% of free reserves and securities premium account, whichever is more.
3. Approval & Resolutions
If the aggregate amount exceeds the above limits, prior approval of the Shareholders by Special Resolution is required.
If within limits, approval of the Board of Directors is sufficient.
Each transaction should be approved via a Board Resolution regardless of limits.
4. Forms to be Filed
Form MGT-7 (Annual Return) will capture details of loans and investments.
Form AOC-4 (Financial Statements) disclosure as per accounting standards.
Form CRA-2 (for creation/modification of charges) if loan is secured.
Form PAS-3 (if shares are issued as part of investment).
Form BEN-2 (to declare beneficial ownership where applicable).
5. Interest Rate & Terms
The terms of the loan should be on arm’s length basis especially for related parties.
Compliance with Transfer Pricing provisions (Section 92-92F) under Income Tax Act is also essential.
6. Other Compliances
Disclosure in Board’s report about the loan and investment.
Adherence to Accounting Standards and Ind AS 24 (Related Party Disclosures).
Ensure no contravention of RBI guidelines if companies are financial institutions.
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