Corporate and Economic Laws · Investment and Loans

Register, Disclosure and Penalty under Section 186

Updated 11 October 2026 · Fact-checked

Under Section 186, a company that gives a loan or guarantee, provides security or makes an acquisition must keep a register at its registered office (Form MBP-2), disclose full particulars in its financial statements, and face fine and imprisonment of officers in default if it contravenes the section.

Understand Register, Disclosures and Penalties under Section 186

Section 186 limits how a company lends and invests. Limits and approvals are only half of it. The law also wants a visible trail, so members can see what the company has done with its money. That trail has three parts: a register, a disclosure in the financial statements, and a penalty if the rules are broken.

The register (sub-sections 9 and 10). Every company giving a loan, giving a guarantee, providing security or making an acquisition under this section must keep a register. The particulars and the manner of keeping it are prescribed by rules. In practice this register is kept in Form MBP-2. Note the wording of the Act: the register covers loans, guarantees, security and acquisitions. Check the rules for the exact particulars before the exam.

The register must be kept at the registered office. It is open to inspection at that office. Any member can take extracts and can get copies on payment of the prescribed fee.

Disclosure (sub-section 4). The company must disclose to members, in the financial statement, the full particulars of loans given, investments made, guarantees given or security provided. It must also state the purpose for which the recipient proposes to use the loan, guarantee or security. The second proviso to sub-section 3 repeats this duty even where a loan, guarantee, security or acquisition involves a wholly owned subsidiary or joint venture company and the special resolution requirement is relaxed. So the exemption from approval is not an exemption from disclosure.

Penalty (sub-section 13). If the company contravenes the section, the company is punishable with fine of not less than ₹25,000 but up to ₹5 lakh. Every officer in default is punishable with imprisonment up to 2 years and fine of not less than ₹25,000 but up to ₹1 lakh. Both the company and the officer face a fine. Only the officer faces imprisonment.

Key rules to remember

Register of loans, guarantees, security and acquisitions: Section 186(9): every company giving a loan, guarantee, security or making an acquisition keeps a register in the prescribed particulars and manner (Form MBP-2); The Act says the register is as prescribed. The form number MBP-2 comes from the rules, not the section text.
Place and inspection of register: Kept at registered office; open to inspection there; members may take extracts and get copies on payment of prescribed fee; Section 186(10). The right belongs to members, and copies are on payment of a fee.
Disclosure in financial statements: Full particulars of loans given, investments made, guarantees given or security provided + purpose of utilisation by the recipient; Section 186(4). The purpose applies to loans, guarantees and security as proposed to be utilised by the recipient.
Penalty on company: Fine: minimum ₹25,000, maximum ₹5,00,000; Section 186(13).
Penalty on officer in default: Imprisonment up to 2 years and fine: minimum ₹25,000, maximum ₹1,00,000; Section 186(13). Both imprisonment and fine apply to the officer in default.

How to solve Register, Disclosures and Penalties under Section 186 questions

Questions on this topic ask you to state a duty, test a fact situation, or quote the penalty. Use the same method each time.

1Identify what the question tests: register, disclosure, penalty, or a mix.
2Identify the transaction: loan, guarantee, security, acquisition of securities, or investment.
3Link it to the duty. A loan, guarantee, security or acquisition goes into the register under sub-section 9. Full particulars and purpose go in the financial statements under sub-section 4.
4Check for any exemption in the facts (for example a wholly owned subsidiary). Remember it relaxes the special resolution requirement but not disclosure.
5If a breach is stated, name who is liable: the company, and every officer in default.
6State the penalty exactly: company fine ₹25,000 to ₹5 lakh; officer imprisonment up to 2 years and fine ₹25,000 to ₹1 lakh.
7End with a one-line conclusion that answers the exact question asked.

Quickest way: Three-part memory chain: Record, Report, Punish

When to use it: Use for MCQs and short notes where you have under two minutes.

Record: register under sub-section 9, kept at registered office, open to inspection, members can take extracts (Form MBP-2).
Report: financial statement shows full particulars and purpose of use (sub-section 4).
Punish: company ₹25,000 to ₹5 lakh; officer in default up to 2 years and ₹25,000 to ₹1 lakh.
Check the options for the trap: the company has no jail term, only the officer.

Common mistakes in Register, Disclosures and Penalties under Section 186

Saying the wholly owned subsidiary exemption removes the disclosure requirement.
Students remember the exemption from the special resolution and extend it to everything.
Fix: The second proviso to sub-section 3 states the company shall still disclose the details in the financial statement.
Writing that imprisonment can be imposed on the company.
Students merge the two penalty limbs into one sentence.
Fix: Company: fine only. Officer in default: imprisonment up to 2 years and fine.
Stating the officer's fine as ₹25,000 to ₹5 lakh.
The two fine ranges are close and share a minimum.
Fix: Both share a minimum of ₹25,000. The maximum is ₹5 lakh for the company and ₹1 lakh for the officer.
Saying the register is kept only for loans.
The section is popularly called loans and investments.
Fix: Sub-section 9 covers loans, guarantees, security and acquisitions. Recall all four.
Giving the register location as the place where the board meets or any office.
Students recall that records are kept at a convenient place.
Fix: Sub-section 10 requires the registered office.
Saying any person can inspect the register and take copies.
Confusion with public registers under other provisions.
Fix: The section gives inspection at the office and extracts and copies to members, on payment of the prescribed fee.

Worked examples

Example 1

Sunrise Textiles Ltd gave a loan to its wholly owned subsidiary, Sunrise Exports Pvt Ltd. The loan took aggregate loans and investments above the limit in section 186(2). The directors say no special resolution, register entry or disclosure is needed. Advise.

Show the solution

Sub-section 3 normally requires a special resolution in a general meeting once the aggregate crosses the limit in sub-section 2.
The first proviso says this requirement does not apply to a loan given to a wholly owned subsidiary. So no special resolution is needed.
The second proviso says the company shall still disclose the details of such loan in the financial statement as provided in sub-section 4.
Sub-section 9 requires a register for every company giving a loan under this section. The section has no carve-out from the register for the loan to a wholly owned subsidiary.
So the directors are right on the special resolution but wrong on disclosure and the register.

Answer: No special resolution is needed, but the company must disclose full particulars and the purpose in its financial statement and must record the loan in the register kept at its registered office.

Example 2

Meridian Steels Ltd gave a guarantee without complying with section 186 and did not record it in the register. State the consequences for the company and for the officers in default.

Show the solution

Sub-section 13 applies when a company contravenes the section.
The company is punishable with fine of not less than ₹25,000 and up to ₹5 lakh.
Every officer in default is punishable with imprisonment up to 2 years.
The officer is also liable to fine of not less than ₹25,000 and up to ₹1 lakh.
Failing to keep the register under sub-section 9 is a failure to comply with the section, so the same penalty provision applies.

Answer: The company faces a fine of ₹25,000 to ₹5,00,000. Each officer in default faces imprisonment up to 2 years and a fine of ₹25,000 to ₹1,00,000.

Exam tips

Learn the penalty numbers as a pair: ₹25,000 to ₹5 lakh for the company, ₹25,000 to ₹1 lakh plus up to 2 years for the officer.
In MCQs, look for options that put imprisonment on the company. They are wrong.
In case scenarios, check whether the borrower is a wholly owned subsidiary. If so, drop the special resolution but keep disclosure.
In long answers, cite sub-section numbers: 4 for disclosure, 9 and 10 for register, 13 for penalty.
Mention that Form MBP-2 comes from the prescribed rules, and do not attribute it to the section text.

Practice questions from Investment and Loans

Register, Disclosures and Penalties under Section 186: frequently asked questions

What is Form MBP-2 under Section 186?

It is the form in which the register of loans, guarantees, security and acquisitions is maintained, as prescribed under the rules made for Section 186(9). The Act itself says the register is kept in the prescribed particulars and manner.

Where must the Section 186 register be kept?

At the registered office of the company. It is open to inspection there, and members can take extracts and get copies on payment of the prescribed fee.

What is the penalty for contravening Section 186?

The company is punishable with fine of ₹25,000 to ₹5 lakh. Every officer in default faces imprisonment up to 2 years and fine of ₹25,000 to ₹1 lakh.

What must be disclosed in the financial statements under Section 186?

The full particulars of loans given, investments made, guarantees given or security provided. The company must also state the purpose for which the recipient proposes to use the loan, guarantee or security.