Section 187 of CA 2013 : Section 187: Investments Of Company To Be Held In Its Own Name

Explanation using Example

Imagine a company, XYZ Pvt. Ltd., decides to invest in shares of another company, ABC Corp. According to Section 187(1) of the Companies Act, 2013, XYZ Pvt. Ltd. must make and hold this investment in its own name. However, if ABC Corp. is a subsidiary of XYZ Pvt. Ltd., and holding shares in the name of XYZ Pvt. Ltd. would reduce the member count of ABC Corp. below the statutory limit, XYZ Pvt. Ltd. can appoint nominees to hold these shares.

Additionally, if XYZ Pvt. Ltd. receives dividends or interest on the shares of ABC Corp., it can temporarily deposit these shares with its bank for the purpose of collecting the dividend or interest, as per Section 187(2)(a). If XYZ Pvt. Ltd. needs to facilitate the transfer of these shares, it can deposit them with the State Bank of India or a scheduled bank, as mentioned in Section 187(2)(b), but must ensure to retransfer them to its own name within six months if no transfer occurs.

Suppose XYZ Pvt. Ltd. takes a loan and needs to provide security. It can deposit shares or securities with the lender as security under Section 187(2)(c). If XYZ Pvt. Ltd. holds investments in the form of securities through a depository, it must maintain a register with prescribed particulars, which is open to inspection by its members or debenture-holders as per Section 187(3).

If XYZ Pvt. Ltd. fails to comply with these requirements, it faces a penalty of five lakh rupees, and its officers face a penalty of fifty thousand rupees each under Section 187(4).