Companies Act 2013 Section 186: Loans and Investment by Company (2026)

Explainer · Company Law · Companies Act 2013

Updated for 2026 · Claw Editorial

Section 186 of the Companies Act, 2013 controls how a company uses its money on other companies: giving loans, standing as guarantor, providing security, or buying shares and securities. Left unchecked, a company could sink its funds into a web of other entities and put shareholders' money at risk. Section 186 sets a ceiling on how much can go out, caps how many layers of investment companies can be stacked, and requires board and sometimes shareholder approval. This explainer sets out the limits, the layers, the approvals and the exemptions. Last verified October 2026.

01The short answer

Section 186 of the Companies Act, 2013 is titled "Loan and investment by company". It governs four things a company does with its money outside its own business: it gives loans, it gives guarantees or provides security for loans taken by others, and it buys the securities of other bodies corporate.

The section does three jobs. It limits the number of layers of investment companies a company can have, broadly two. It sets a ceiling on the total of loans, guarantees, security and investments, above which the shareholders must approve by special resolution. And it lays down the board process and disclosures for every such transaction.

02The two layer limit

Section 186(1) says a company shall not make investment through more than two layers of investment companies. An investment company is one whose main business is buying shares, debentures or other securities.

There are exceptions, for example acquiring a foreign company that already has more layers under its own local law, or a subsidiary having an investment subsidiary where another law requires it.

03The monetary ceiling

Section 186(2) sets a ceiling on how much a company can commit in loans, guarantees, security and investments taken together. The limit is the higher of:

The company may use whichever figure is higher. To go beyond that ceiling, the company needs prior approval of the shareholders by a special resolution. Below the ceiling, a board resolution is enough.

04Approvals and conditions

Even within the limit, Section 186 lays down a process:

• the resolution sanctioning the loan, guarantee, security or investment must be passed at a board meeting with the consent of all the directors present;
• where a term loan is outstanding from a public financial institution and the ceiling is crossed or there is a default, the institution's prior approval is also needed;
• a loan under Section 186 must carry interest not below the prevailing yield of a government security of a matching period;
• a company in default on the repayment of deposits cannot give a loan, guarantee or security under the section.

The company must also keep a register of the loans, guarantees, security and investments it makes, open to inspection by members.

05Exemptions

Section 186 does not apply to every such transaction. Broadly, it does not apply to:

• a loan, guarantee, security or investment made by a banking company, an insurance company or a housing finance company in the ordinary course of its business;
• a company engaged in the business of financing companies or providing infrastructural facilities;
• an acquisition made by a company whose principal business is the acquisition of securities, such as an investment company; and
• a rights issue under Section 62.

These carve outs keep normal financial sector business and certain routine corporate actions outside the section.

06Why it matters

Section 186 is central to how group companies fund each other and how investors assess risk. A company that breaches the ceiling, skips the special resolution, or stacks too many layers exposes its directors to penalties and its decisions to challenge. Breaches often surface in auditor reports, Registrar prosecutions and oppression and mismanagement petitions under Sections 241 and 242.

It is read alongside Section 185 on loans to directors and Section 188 on related party transactions, and the register it requires is part of company due diligence.

07Where Claw fits

Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.

Section 186 disputes, over whether a limit was crossed, whether the right resolution was passed, or whether an exemption applied, run through NCLT petitions, Registrar prosecutions and High Court appeals. Claw lets you search more than 30 crore judgments, with Supreme Court decisions from 1950 and High Court decisions from 1990, to see how courts have read the ceiling, the layer rule and the exemptions, with results in under 5 seconds. You can also track a live matter, with its orders and hearings, by company or party name across 9,102 courts, benches and forums. Claw does not use the documents you upload to train its AI models.

Create a FREE Claw account to track any Section 186 matter by party name and follow every hearing, and use case search across Indian courts to find how courts have applied the loan and investment rule.

08Sources and further reading

• India Code (Companies Act, 2013, bare text): indiacode.nic.in
• Ministry of Corporate Affairs: mca.gov.in
• PRS Legislative Research: prsindia.org
• Claw: clawlaw.in

This explainer is general information, not legal advice. The limits, exemptions and procedure under Section 186 can change, so check the current text and take advice from a company secretary or counsel before you act.

09Frequently asked questions