1. Legal Provision – Section 186 of the Companies Act, 2013

• Governs loans, guarantees, and investments made by a company to other entities
  
• A company may lend to another company up to 60% of its paid-up share capital, free reserves, and securities premium
  or
  100% of its free reserves and securities premium, whichever is higher
  
• Loans beyond this limit require shareholder approval by special resolution

2. Board and Shareholder Approval

• Board resolution is mandatory for all inter-corporate loans
  
• If the loan exceeds prescribed limits, a special resolution in a general meeting is also required
  
• The resolution must state the purpose, terms, and borrowing entity’s identity

3. Rate of Interest Condition

• The loan must carry an interest rate not lower than the prevailing yield of government securities for comparable tenure
  
• Prevents companies from lending at artificially low or interest-free rates

4. Exceptions and Exemptions

• Banking companies, insurance companies, and housing finance companies are exempt from Section 186 restrictions for business-related lending
  
• Loans to wholly owned subsidiaries or joint ventures may be exempt from shareholder approval but must still be reported

5. Disclosure and Reporting

• Details of the loan must be disclosed in the financial statements and board report
  
• Required to be reported in Form MGT-9 (extract of annual return) and register of loans, guarantees, and investments