University · Calculators

Section 186 Loan Cap Calculator.

Test loans, guarantees and investments against the Section 186 ceiling. Get board / special-resolution routing instantly.

Inputs (₹ in crore)

Paid-up share capital

Free reserves

As defined in Section 2(43) — credit balance excluding revaluation reserve and unrealised gains.

Securities premium

Existing loan + guarantee + investment exposure

Aggregate as on date — Section 186(2) ceiling test is cumulative.

Proposed new exposure

Result

Limit A — 60% of (Paid-up + Free Reserves + Sec Premium)₹90.00 cr

Limit B — 100% of (Free Reserves + Sec Premium)₹100.00 cr

Sec 186 ceiling (higher of A or B)₹100.00 cr

Total exposure after proposed₹100.00 cr

Special Resolution required?✗ No — within ceiling, board resolution suffices

Reminders

• Unanimous board resolution under Sec 186(5) is mandatory regardless of amount.
• Interest rate not lower than prevailing yield of 1Y/3Y/5Y/10Y G-Sec closest to tenor (Sec 186(7)).
• Disclosure in financial statements under Sec 186(4) — purpose and utilization.
• CARO 2020 clause (iv) — comment on compliance with Sec 185 and 186.

How Section 186 works.

Section 186 of the Companies Act 2013 regulates loans, guarantees, securities and investments by companies. Sub-section (2) imposes a quantitative ceiling: a company may not, directly or indirectly, give any loan / give any guarantee / provide any security / acquire securities of any other body corporate exceeding 60% of (paid-up capital + free reserves + securities premium) OR 100% of (free reserves + securities premium), whichever is higher — without prior shareholder approval by special resolution.

A unanimous resolution of all directors present at the board meeting is mandatory for every such transaction regardless of size (Sec 186(5)).

On CORAA

Section 186 register reconciliation and CARO clause (iv) reporting are automated in CORAA — see Scrutiny for loan / investment register testing and the CARO clause (iv) page.

Section 188 RPT Calculator CARO clause (iv)

How the Section 186 ceiling works

Section 186 of the Companies Act 2013 regulates loans, guarantees, securities, and acquisition of securities by a company. Sub-section (2) imposes a quantitative ceiling on the aggregate amount: a company may not, directly or indirectly, give any loan, give any guarantee, provide any security in connection with a loan, or acquire by way of subscription / purchase / otherwise the securities of any other body corporate exceeding 60% of (paid-up share capital + free reserves + securities premium) OR 100% of (free reserves + securities premium) — whichever is higher.

When a proposed transaction would breach this ceiling, prior approval by special resolution of shareholders is required. Below the ceiling, board approval alone suffices — but the board resolution must be passed unanimously by all directors present at the meeting (Section 186(5)). The interest rate on any loan must not be lower than the prevailing yield of one-year, three-year, five-year or ten-year Government Security closest to the loan tenor (Section 186(7)).

Section 186 does not apply to (a) loans made by a banking company / insurance company / housing finance company in the ordinary course of business; (b) acquisitions made by an NBFC registered with RBI in the ordinary course of business; (c) loans, guarantees or securities provided by a holding company to its wholly-owned subsidiary or joint venture company; (d) acquisition by a holding company of securities of its wholly-owned subsidiary.

Worked example — proposed inter-corporate loan

A company with paid-up capital of ₹50 cr, free reserves of ₹80 cr and securities premium of ₹20 cr proposes to give an inter-corporate loan of ₹60 cr. Existing aggregate exposure (loans + guarantees + investments) is ₹40 cr.

Inputs

Paid-up capital₹50 Cr

Free reserves + securities premium₹100 Cr

Existing exposure₹40 Cr

Proposed loan₹60 Cr

Output

Limit A (60% of ₹150 Cr)₹90 Cr

Limit B (100% of ₹100 Cr)₹100 Cr

Sec 186 ceiling (higher)₹100 Cr

Total after proposed loan₹100 Cr — at limit

Special resolutionNot required (within ceiling)

Total exposure (₹100 Cr) exactly equals the ceiling, so no special resolution is required. However, board approval via unanimous resolution is mandatory regardless. CARO clause (iv) requires the auditor to comment on Section 185 / 186 compliance.

Common mistakes

Using paid-up + free reserves only (forgetting securities premium)

The base for Limit A is paid-up share capital PLUS free reserves PLUS securities premium account. Securities premium often gets missed and the ceiling is understated.

Misclassifying revaluation reserve as a free reserve

Section 2(43) defines free reserves to exclude revaluation reserve and unrealised gains, notional gains, or revaluation of assets — whether shown as reserve or otherwise. A simple total of reserves and surplus is wrong.

Not counting cumulative exposure

The ceiling test is cumulative — existing loans + guarantees + securities + new proposed transaction must all be within the limit. A small new loan can breach the ceiling if existing exposure is already high.

Ignoring the unanimous board resolution requirement

Section 186(5) requires that EVERY director present at the meeting must consent. A single dissenting director kills the resolution. This is often missed in companies with frequent inter-corporate transactions.

Lending below the G-Sec yield

Section 186(7) prohibits loans at a rate lower than the prevailing yield of 1Y / 3Y / 5Y / 10Y G-Sec closest to the tenor. Inter-corporate loans at "0% interest" or "concessional rates" are not permitted.

Frequently asked questions

What is the Section 186 ceiling?+

The higher of (a) 60% of (paid-up capital + free reserves + securities premium), or (b) 100% of (free reserves + securities premium). Any aggregate exposure beyond this requires shareholder approval by special resolution.

Does Section 186 apply to loans to directors?+

No. Loans to directors and entities in which directors are interested are governed separately under Section 185, which is far more restrictive (general prohibition with limited exceptions). Section 186 covers loans to other body corporates.

Is the unanimous board resolution requirement absolute?+

Yes — Section 186(5) requires consent of all directors present at the meeting for any loan, guarantee, security or investment under this section, regardless of amount. A circular resolution is not sufficient; it must be at a meeting.

How is "free reserves" defined for Section 186?+

Section 2(43) of the Companies Act 2013 defines free reserves as such reserves which, as per the latest audited balance sheet, are available for distribution as dividend. It excludes (i) revaluation reserve, (ii) unrealised gains, notional gains, or revaluation of assets, (iii) any change in carrying value of assets / liabilities recognised in equity (including OCI surplus).

What is the minimum interest rate for an inter-corporate loan?+

Section 186(7) — not less than the prevailing yield of one-year, three-year, five-year or ten-year Government Security closest to the tenor of the loan. The yield should be from the latest available data (RBI bulletin or NSDL/SEBI dataset) at the time of disbursement.

Is shareholder approval required for renewals of existing loans?+

If the renewal results in aggregate exposure crossing the ceiling, yes — a fresh special resolution is needed. If the existing loan was within the ceiling at sanction and the renewal does not increase aggregate exposure beyond the ceiling, the original approval continues to cover it.

Does CARO 2020 require reporting on Section 186?+

Yes. CARO 2020 clause (iv) requires the auditor to comment on whether the provisions of Sections 185 and 186 have been complied with in respect of loans, investments, guarantees, and securities granted by the company.

Are intra-group transactions exempted?+

Loans, guarantees or securities provided by a holding company to its wholly-owned subsidiary or joint venture company are exempt from the ceiling and shareholder approval (proviso to Section 186(11)(b)). Acquisition by a holding company of securities of its WOS is also exempt.

Authoritative sources

Section 186 — Companies Act 2013 — Read alongside Companies (Meetings of Board and its Powers) Rules 2014 — Rule 11 (register of loans, guarantees, securities, and investments).

Always confirm against the latest version of the source. Regulations evolve and amendments are common.

Related calculators

Section 188 RPT Threshold →Section 197 Remuneration →CARO clause (iv) →CARO clause (v) — Deposits →

Last reviewed: 2026-05-28 · For informational purposes only — not professional advice.