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Comparison of Section 186 of Companies Act, 2013 and Section 372A of Companies Act, 1956.

Particulars Section 186 of Companies Act, 2013 (“the 2013 Act”) Section 372A of Companies Act, 1956 (“the 1956 Act”)
Heading of Section Loan and Investment by Company Inter Corporate-Corporate Loans and Advances.
Number of Sub-Section 13 9
Restriction on multi layered Investment A Company shall unless otherwise prescribed, make investment through not more than two layers of Investment Companies. Provided that above restriction is not applicable in following cases; (i) a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond  two layers as per the laws of such country; (ii) a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force. No such provision
Specified transactions are covered
  1. Loan to any Person.
  2. Loan to any Body Corporate
  3. Guarantee to any Person.
  4. Guarantee to any Body Corporate.
  5. Security in connection with a loan to Person
  6. Security in connection with a loan to Body Corporate.
  7. Acquire by way of subscription, purchase or otherwise, the securities of  any other body corporate
  1. Loan to any Other Body Corporate
  2. Guarantee to any Body Corporate.
  3. Security in connection with a loan to Body Corporate.
  4. Acquire by way of subscription, purchase or otherwise, the securities of  any other body corporate
Type of Persons Covered
  1. Persons
  2. Body Corporate
Section 372A of 1956 Act covers only Body Corporate, whereas Section 186 of the 2013 Act covers Peron’s and Body Corporate. The word “Person” has not been defined under the 2013 Act. As per Section 2(31) of the Income Tax Act 1961, “person” includes:
  1. an individual,
  2. a Hindu undivided family,
  3. a company,
  4. a firm,
  5. an association of persons or a body of individuals, whether incorporated or not,
  6. a local authority, and
  7. every artificial juridical person, not falling within any of the preceding sub-clauses.
Body Corporate
Applicability
  1. Public Companies
  2. Private Limited Companies.
The above applicability is subject to exemption provided under Section and Rules.
  1. Public Companies
  2. Private Limited Companies which are Subsidiaries of Public Companies.
The above applicability is subject to exemption provided under Section.
Exemptions from applicability (a) to a loan made, guarantee given or security provided by a banking company or an insurance company or a housing finance company in the ordinary course of its business or a company engaged in the business of financing of companies    or of providing infrastructural facilities; (b) to any acquisition— (i) made by a non-banking financial company registered under Chapter IIIB of the Reserve Bank of India Act, 1934 and whose principal business is acquisition of securities: Provided that exemption to non-banking financial company shall be in respect of its investment and lending activities; (ii) made by a company whose principal business is the acquisition of securities; (iii) of shares allotted in pursuance  of Rights Issue. Rule 11 (1) of the Companies (Meetings of Board and its powers) Rules, 2014 provides that provisions of Section 186 is applicable to “wholly owned subsidiary” except sub section (3) of Section 186 of the 2013 Act (a) to any loan made, any guarantee given or any security provided or any investment made by— (i) a banking company, or an insurance company, or a housing finance company in the ordinary course of its business, or a company established with the object of financing industrial enterprises, or of providing infrastructural facilities; (ii) a company whose principal business is the acquisition of shares, stock, debentures or other securities; (iii) a private company, unless it is a subsidiary of a public company; (b) to investment made in shares allotted in pursuance of Rights Issue; (c) to any loan made by a holding company to its wholly owned subsidiary; (d) to any guarantee given or any security provided by a holding company in respect of loan made to its wholly owned subsidiary; or (e) to acquisition by a holding company, by way of subscription, purchases or otherwise, the securities of its wholly owned subsidiary.
Requirement of Section The Section requires to obtain the unanimous approval of the board if it; a)  gives any loan to any person or other body corporate b)  gives any guarantee or provide security in connection with a loan to any other body corporate or person; and c)  acquire by way of subscription, purchase or otherwise, the securities of any other body corporate, not exceeding 60% of its paid-up share capital, free reserves & securities premium account or 100% of its free reserves and securities premium account, whichever is more If the above said limits exceeds then prior approval of Members by means of Special Resolution would be require. Note: While Computing the above said limit the “Security Premium” is included in addition to paid up share capital and free reserve whereas under the 1956 Act “Security premium” was not included in computing the limit. The Section requires to obtain the unanimous approval of the board if it; a)  makes any loan to any other body corporate b)  gives any guarantee, or provide security, in connection with a loan made by any other person to, or to any other person by, any Body Corporate; and c)   acquire by way of subscription, purchase or otherwise, the securities of any other body corporate, not exceeding 60% of its paid-up share capital, free reserves or 100% of its free reserves, whichever is more. If the above said limits exceeds then prior approval of Members by means of Special Resolution would be require.
Interest rate on Loans Rate of interest shall not be lower than the prevailing yield of 1 year, 3 years,  5 years or 10 years Government Security closest to the tenor of the loan Rate of interest shall not be lower than the prevailing bank rate, being the standard rate made public under section 49 of the Reserve Bank of India Act, 1934
Penalty The company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees The company and every officer of the company who is in default shall he punishable with fine which may extend to five thousand rupees and also with a further fine which may extend to five hundred rupees for every day after the first day during which the default continues
 
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