Section 186 of the Companies Act, 2013 is related to Loans and investment by company. As per sub section (7) companies are not authorized to give loan under this section at a rate of interest lower than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan. Similarly under Section 372A(3) of the erstwhile Companies Act, 1956 it had been provided that No loan to any body corporate shall be made at a rate of interest lower than the prevailing bank rate, being the standard rate made public under section 49 of the Reserve Bank of India Act, 1934.

However, on representation, the following important clarification has been issued by MCA.

General Circular No. 06/2015

File No.  5/3/13-CL.V
Government of India
Ministry of Corporate Affairs

5th floor, 'A' wing, Shastri Bhavan
Dr. R P Road, New Delhi
Dated 9th April, 2015

All Regional  Directors,
All Registrar of Companies,
All Stakeholders

Subject : Clarification under sub-section (7) of section 186 of the Companies Act, 2013

Sir,

Attention of this Ministry has been drawn to General Circular No 06/2013 dated 14.03.2013 vide which it was clarified that in cases where the effective yield (effective rate of return) on tax free bonds is greater than the yield on prevailing bank rate, there was no violation of Section 372A(3) of Companies Act,1956. Stakeholders have requested for similar clarification w.r.t. corresponding section 186(7) of the Companies Act, 2013.

2. The matter has been examined in the Ministry and it is hereby clarified that in cases where the effective yield (effective rate of return) on tax free bonds is greater than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan, there is no violation of sub-section (7) of section 186 of the Companies Act, 2013.

3. This issues with the approval of competent authority.

Yours faithfully,

(K M S Narayanan)
Assistant Director
Ph 23387263