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Exemption Checklist under Section 186 – Companies Act, 2013
Exemption Checklist under Section 186 – Companies Act, 2013
This checklist helps determine whether a company’s loan, guarantee, security, or investment is exempt from the applicability of Section 186, except sub-section (1) which applies to all companies.
Step 1: Identify the Nature of Transaction
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Loan Made
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Guarantee Given
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Security Provided
-
Investment Made
Proceed to Step 2 only if any of the above transactions are being undertaken.
Step 2: Check for Exemptions
A. Ordinary Course of Business Transactions
The transaction is made in the ordinary course of business by one of the following:
| Exempt Entity Type | Yes | No |
|---|---|---|
| Banking Company | ||
| Insurance Company | ||
| Housing Finance Company | ||
| Company financing industrial enterprises | ||
| Company providing infrastructure facilities |
If “Yes” is selected for any, the transaction is exempt (except from sub-section 1).
B. Specific Investment Scenarios
| Investment Type | Yes | No |
|---|---|---|
| Made by an Investment Company (see definition below) | ||
| In shares allotted under Section 62(1)(a) (rights issue to existing shareholders) | ||
| In shares under a rights issue made by any body corporate | ||
| By an NBFC registered under Chapter III-B of RBI Act, 1934, and principally engaged in acquisition of securities |
If “Yes” is selected for any, the transaction is exempt (except from sub-section 1).
Definitions for Reference
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Investment Company
A company is considered an investment company if:
| Criteria | Yes | No |
|---|---|---|
| ≥ 50% of total assets are in shares/securities | ||
| ≥ 50% of gross income from investment activities |
If any of the above is “Yes,” the company qualifies as an investment company.
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Infrastructure Facilities
Refer to Schedule VI of the Companies Act, 2013 (e.g. roads, highways, ports, water supply, telecom, power, urban infrastructure).
Important Note on Sub-Section (1):
Regardless of exemption, sub-section (1) of Section 186 — which restricts the use of more than two layers of investment companies — applies to all companies.
Final Compliance Decision
| Question | Yes | No |
|---|---|---|
| Does the transaction fall under any of the above exemptions? |
If Yes: Section 186 (except sub-section 1) does not apply.
If No: Full compliance with all provisions of Section 186 is mandatory.
DISCLAIMER:
THE CONTENTS OF THIS DOCUMENT ARE PROVIDED BASED ON CURRENT PROVISIONS AND INFORMATION AVAILABLE. WHILE EVERY EFFORT HAS BEEN MADE TO ENSURE ACCURACY AND RELIABILITY, NO RESPONSIBILITY IS ASSUMED FOR ANY ERRORS OR OMISSIONS. USERS ARE ENCOURAGED TO REFER TO APPLICABLE LAWS AND REGULATIONS. THIS INFORMATION IS NOT TO BE CONSTRUED AS LEGAL ADVICE, AND NO LIABILITY IS ACCEPTED FOR ANY CONSEQUENCES ARISING FROM ITS USE.
From the Desk of CS SHARATH