Background

The provision relating to investments of a company to be held in its own name was introduced under the Companies Act, 2013 to ensure transparency and proper ownership of securities acquired by a company under Section 187 of the Companies Act, 2013. It aims to prevent misuse, benami holdings, or concealment of investments by requiring that all investments be registered in the company’s name, except in specified circumstances. This helps maintain clear records and accountability in financial transactions. The rule strengthens corporate governance by ensuring that the company has direct control and legal ownership over its investments. It also protects the interests of shareholders by promoting accurate disclosure and reducing the risk of fraud.

Applicability

 Companies require to hold investments in its own name:

• Private Limited Company
• Public Limited Company
• Listed Company

Compliance Requirements under the Act in accordance with the Companies (Meetings of Board and its Powers) Rules, 2014

1. Mandatory Requirement: All investments made or held by a company in any: [Section 187(1)]

• • Property
  • Security
  • Other asset

shall be made and held in its own name.

Proviso –

Nominee Holdings for Subsidiaries: A company may hold shares in its subsidiary company in the name of nominee(s) if:

• • Necessary to ensure the number of members of the subsidiary does not fall below statutory limit

     2. Permitted Exceptions [Section 187(2)]

The general rule in Section 187(1) does not prevent a company from the following:

Banking Arrangements for Collection [Section 187(2)(a)]

Depositing shares or securities with a bank (being the company’s bankers) for:

• • Collection of dividend payable thereon, OR

  • Collection of interest payable thereon

Banking Arrangements for Transfer Facilitation [Section 187(2)(b)]

Permitted Activity: Depositing with, transferring to, or holding in the name of:

• • State Bank of India, OR

  • A scheduled bank

(being the bankers of the company)

Purpose: To facilitate the transfer of shares or securities

Proviso – Time Limit and Re-transfer Obligation:

6-month Rule: If no transfer takes place within 6 months from the date:

• • The shares/securities are transferred by the company to the bank, OR

  • The shares/securities are first held by the company in the name of the bank

The company shall, as soon as practicable after expiry of 6 months:

• • Have the shares/securities re-transferred to the company from the bank, OR

  • Again hold the shares/securities in its own name

Security for Loans/Obligations [Section 187(2)(c)]

Permitted Activity: Depositing with or transferring to any person, shares or securities:

Purpose: By way of security for:

• • Repayment of any loan advanced to the company, OR

  • Performance of any obligation undertaken by the company

Depository Holdings [Section 187(2)(d)]

Permitted Activity: Holding investments in the name of a depository when:

• • Such investments are in the form of securities

  • Held by the company as beneficial owner

Triggers Register Requirement under Section 187(3)

    3.  Register Maintenance for Depository Holdings [Section 187(3) & Rule 13]

Statutory Requirement [Section 187(3)]

Where shares/securities are held pursuant to Section 187(2)(d) (i.e., in depository mode):

Mandatory Register: Company shall maintain a register containing prescribed particulars

Inspection Rights: Register shall be open to inspection by:

• • Any member of the company

  • Any debenture-holder of the company

Without charge during business hours

Restrictions: Subject to reasonable restrictions imposed by the company through:

• • Its Articles, OR

  • In general meeting

    4.  Prescribed Particulars and Maintenance [Rule 14]

Form and Content [Rule 14(1)]

Form: MBP 3

Effective Date: From the date of company’s registration

Entries to be Made Chronologically:

(a) Particulars of investments:

• • In shares or other securities

  • Beneficially held by the company

  • But not held in its own name

(b) Reasons for not holding in own name

(c) Relationship or contract under which the investment is held in another person’s name

Additional Recording [Rule 14(2)]

The company shall also record whether such investments are:

• • Held in a third party’s name for the time being, OR

  • Otherwise

Location and Custody [Rule 14(3)]

Location: At the registered office of the company

Preservation: Permanently

Custody: To be kept in custody of:

• • Company Secretary, OR

  • If no Company Secretary – any Director, OR

  • Any other officer authorized by the Board

Authentication [Rule 14(4)]

Entries in the register shall be authenticated by:

• • Company Secretary, OR

  • Any other person authorized by the Board

Penalty & Punishment

As per Section 187(4):

If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees