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CMA Final · Corporate and Economic Laws · Investment and Loans

Which of the following statements about Section 186(1) and its provisos is correct?

The correct statement is that the two-layer restriction applies unless otherwise prescribed, so rules can prescribe a different position. The subsidiary proviso is confined to requirements under a law or regulation, Board approval cannot lift the limit, and officers in default are also punishable under sub-section (13).

  1. AThe proviso for subsidiaries applies to any subsidiary that wants an investment subsidiary for business convenience
  2. BThe restriction applies to the investment 'unless otherwise prescribed', so rules may prescribe a different positionCorrect
  3. CThe restriction is lifted whenever the Board unanimously approves the extra layer
  4. DFine under sub-section (13) applies to the layer breach only on the company and not on officers in default

Explanation

Section 186(1) opens with 'unless otherwise prescribed', so rules can alter the position. The subsidiary proviso is limited to meeting requirements under a law, rule or regulation, not business convenience. Board consent does not lift the limit, and sub-section (13) penalises both the company and officers in default.

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