Regarding Section 186

This query is : Resolved

Meenakshi Ramandasani (Querist)
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01 March 2023 Can limit under section 186 of the Companies Act 2013 be calculated monthly ??

Or is it mandatory that this limit shall be calculated annually ??

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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10 July 2024 Section 186 of the Companies Act, 2013 pertains to loans and investments by companies. The limits specified under this section are generally interpreted and applied on an aggregate basis throughout the financial year rather than on a monthly basis. Here are the key points to consider:

1. **Aggregate Limits:** The limits prescribed under Section 186 apply to the aggregate of loans given, investments made, guarantees given, and security provided by the company. These limits are typically calculated cumulatively for the entire financial year (April to March).

2. **Calculation Basis:** While the statute does not explicitly require calculation on an annual basis, the practical application considers the cumulative exposure over the financial year. This means that throughout the year, the company must monitor and ensure compliance with the prescribed limits as per Section 186.

3. **Reporting and Compliance:** Companies are required to disclose loans, investments, guarantees, and security provided in their financial statements, typically on an annual basis. This reporting aligns with the calculation and compliance requirements under Section 186.

4. **Board Approvals:** Any transaction that exceeds the limits specified under Section 186 requires prior approval of the Board of Directors. This approval is obtained based on the anticipated transactions and their aggregate impact over the financial year.

5. **Exceptions and Specific Cases:** In certain cases, such as transactions with related parties or specific exemptions provided under the law, additional compliance requirements may apply. It's essential for companies to review the specific provisions of Section 186 and any applicable exemptions or clarifications issued by regulatory authorities.

In summary, while the Companies Act, 2013 does not explicitly mandate monthly calculation of limits under Section 186, companies should ensure ongoing monitoring and compliance with these limits on an aggregate basis throughout the financial year. This approach helps in avoiding breaches and ensures proper governance regarding loans, investments, guarantees, and security provided by the company.