Section 186

Sec 186(2)- 60% of (paid up SC + Free Res + Sec Prem), or
100% of ( Free Res + Sec Prem),
whichwver is lower.
Sec 186(3)- if loan + investment + guarantee+ surety both present and proposed exceeds the avove limit, prior approval of members at GM bu paasing SR is needed.

In pursuant to provisions of Section 186(2) of the Act,

No Company shall directly or indirectly give any loan to any person or other body corporate, give any guarantee or provide security in connection with a loan to any other body corporate or person and acquire by way of subscriptttion, purchase or otherwise, the securities of any other body corporate :

1.Exceeding 60% of its paid-up share capital plus free reserves plus securities premium account or

2.100% of its free reserves plus securities premium account, whichever is more

Thank you sir for your reply I got the concept but sir if possible can you please provide me the example for section 186(3).

PUSC= 10 lacs; Gen Res= 15 lacs; Sec prem= 5 lacs. Loan already given to X Ltd. = 4 lacs.
Co proposing to give loan to Y Ltd. (i) 12 lacs or (ii) 18 lacs.
Step 1= max limit u/s 186(2)= 60 % of 40 lacs or 100% of 20 lacs whichever is lower = 20 lacs
Step 2= apply sec 186(3)=
case (i)= present loan given + proposed to be given = 4+12= 16 lacs which is within limit of Step 1, So no approval of members needed.
case (ii)= 4+18= 22 lacs which is crossing the limit of Step 1. Thus, as pr sec 186(3), prior approval of members at general meeting by special resolution needed before disbursing loan of 18 lacs to Y Ltd.

Thank you so much sir

Check your inbox.this example is wrong. Sincere apologies

Limit u/s 186(2)
Higher of
60% of aggregate of paid up share capital, free reserves and security premium
Or
100% of free reserves