Section 185/186 loan & investment headroom
Capital, reserves and existing exposure in; the section 186 headroom and whether a special resolution or the section 185 route is needed.
The company
Proposed transaction
Section 185 does not come into play for this transaction.
Section 186 headroom
Ceiling Higher of 60% of capital+reserves+premium, or 100% of reserves+premium — s186(2)/(3) | ₹0 |
Existing, counted Everything outstanding, a WOS or JV included — s186(2) | ₹0 |
| Of which to a WOS or JV (no special resolution was needed) | ₹0 |
| Headroom before this transaction | ₹0 |
Proposed transaction Counts in the aggregate | ₹0 |
| Headroom after this transaction | ₹0 |
| Approval needed | Board approval only |
- Ceiling under section 186(2)/(3): the higher of 60% of capital + free reserves + securities premium, or 100% of free reserves + securities premium. Every outstanding loan, guarantee, security and investment counts in the aggregate, those to a WOS or JV included.
- The aggregate after this transaction stays within the section 186 ceiling: only Board approval is needed (unanimous Board approval above certain amounts under section 186(5), not assessed here).
Proposed rate (0%) is at or above the Government-security yield entered (0%): the section 186(7) floor is met. The floor applies to a loan to a WOS or JV as well.
Existing exposure
Every loan, guarantee, security or investment already given or made, still outstanding.
- Counted
Companies Act 2013, sections 186(2), 186(3) with its provisos, and 186(7); sections 185(1), 185(2) and 185(3), with MCA notification G.S.R. 464(E) dated 5 June 2015. A loan, guarantee or security to a WOS or JV, and an acquisition of a WOS's securities, needs no special resolution (proviso to section 186(3)); this tool still counts it in the aggregate, and the section 186(7) interest floor applies to every loan, a WOS or JV loan included. Not modelled: section 186(5)'s unanimous Board approval above certain amounts, and section 186(11)'s exclusions for banking, insurance and housing-finance companies, investment companies and certain NBFCs. Check the result before relying on it.
IN SHORT
This free calculator works out the section 186 limit, the higher of 60% of paid-up capital, free reserves and securities premium or 100% of free reserves and securities premium, and the headroom before and after a proposed loan, guarantee, security or investment, including whether a special resolution is needed. It also tests section 185: the bar on loans to directors, the special-resolution route and the exceptions.
STEP BY STEP
How it works
- Enter paid-up capital, free reserves, securities premium and every loan, guarantee, security or investment still outstanding, marking any to a wholly owned subsidiary or joint venture.
- Add the proposed transaction: amount, kind and, for a loan, the rate and the yield of the Government security closest to its tenor.
- Say who receives it for section 185, then read the headroom, whether a special resolution is needed, the section 186(7) interest floor and the section 185 result.
GOOD TO KNOW
Common questions
- Are loans to a subsidiary or joint venture exempt?
- Only from the special resolution. Under the proviso to section 186(3), a loan, guarantee or security to a wholly owned subsidiary or joint venture, or buying a wholly owned subsidiary's securities, needs no special resolution. An investment in a joint venture gets no such relief. The tool still counts these amounts in the aggregate, and the section 186(7) interest floor applies to every loan.
- Can a special resolution allow a loan to a director?
- No. Section 185(1) prohibits a loan, guarantee or security to a director, a director's relative or partner, or a firm in which a director or relative is a partner, unless an exception in section 185(3) applies. The special-resolution route in section 185(2) is only for another person in whom a director is interested, such as a private company where a director is a director or member, and the borrower must use the money for its principal business.
- What are the section 185(3) exceptions?
- A loan to a managing or whole-time director under conditions of service for all employees or a scheme approved by special resolution; a company that lends in the ordinary course of business, at interest not below the RBI bank rate; a loan, guarantee or security for a wholly owned subsidiary; and a guarantee or security for a bank or financial institution loan to a subsidiary used for its principal business.
- Does it fetch the Government security yield or the bank rate?
- No. Enter the yield of the Government security closest to the loan's tenor, and the RBI bank rate where needed, yourself.
- When is a private company exempt from section 185?
- Only when all three conditions of G.S.R. 464(E) of 5 June 2015 hold: no body corporate holds its shares, its borrowings are below the lower of twice its paid-up capital or ₹50 crore, and it has no subsisting default.
- What if the transaction uses exactly the limit?
- Headroom of exactly zero afterwards does not need a special resolution; going over the limit does.