Clarification Under section 186(7) of Companies Act, 2013

Gen­er­al Cir­cu­lar No. 06/2015

Dat­ed 9th April, 2015

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

Sec­tion 186(7) spec­i­fies that- “No loan shall be giv­en 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.