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CMA Final · Corporate and Economic Laws · Investment and Loans

Under Section 186(1) of the Companies Act, 2013, how is an 'investment company' defined for the purpose of the restriction on layers of investment companies?

An investment company is a company whose principal business is the acquisition of shares, debentures or other securities. Its status depends on the nature of its main business, not on the percentage it holds, on NBFC registration, or on the size of its investments relative to capital.

  1. AA company whose principal business is the acquisition of shares, debentures or other securitiesCorrect
  2. BA company that holds at least 51% of the shares of another company
  3. CA company registered as a non-banking financial company with the Reserve Bank of India
  4. DA company whose total investments exceed sixty per cent of its paid-up capital and free reserves

Explanation

The Explanation to Section 186 defines an investment company as one whose principal business is acquiring shares, debentures or other securities. The holding percentage, NBFC registration and investment-to-capital ratio do not feature in the definition. The option on 60% confuses the definition with the loan and investment limit in sub-section (2).

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