SECTION 187 OF THE COMPANIES ACT

 SECTION 187: INVESTMENT OF COMPANY TO BE HELD IN ITS OWN NAME

Section 187 of the Act contains provisions which, as a general rule, require that all investments made by a company shall be held by it in its own name. There are certain exemptions also. The provisions of Section 187 are discussed as under:

(i) Investments by a company in its own name: According to Section 187 (1), all investments made or held by a company in any property, security or other assets shall be made and held by it in its own name. Following diagram depicts this provision:

As an exception, it is provided that company may hold any shares in its subsidiary company in the name of any nominee or nominees of the company, if itis necessary to do so, to ensure that the number of members of the subsidiary company is not reduced below the statutory limit.

(ii) Exemptions: It is not always necessary that a company must hold the investments in its own name. Certain exemptions provided by Section 187 (2) are as under:

(a) Deposit of shares and debentures with bankers for collection of dividend and interest: A company is permitted to deposit with its bankers any shares or securities for the collection of any dividend or interest payable thereon.

(b) Deposit or transfer to or hold in the name of its bankers shares or securities, in order to facilitate the transfer: A company is permitted to deposit with or transfer to or hold in the name of its bankers (i.e. the State Bank of India or a scheduled bank), shares or securities, in order to facilitate the transfer thereof.

However, if within a period of 6 months from the date on which the shares or securities are transferred by the company to, or are first held by the company in the name of its bankers (i.e. the State Bank of India or a scheduled bank), no transfer of such shares or securities takes place, the company shall, as soon as practicable after the expiry of that period, have the shares or securities re-transferred to it from its bankers or, as the case may be, again hold the shares or securities in its own name.

(c) Deposit with or transfer to any person any shares or securities, by way of
security for the repayment of any loan : A company is permitted to deposit with or transfer to any person any shares or securities, by way of security for the repayment of any loan advanced to the company or the performance of any obligation undertaken by it.

(d) Depository investments in the form of securities held as a beneficial owner: A company is permitted to hold investments in the name of a depository when such
investments are in the form of securities held by the company as a beneficial owner.

(iii)  Maintenance of Register by a company in case securities are held in the name of a depository and not in its own name [Section 187 (3)]: Section 187 (2) (d) permits a company to hold securities (i.e. any shares or securities) in the name of a depository, the company being the beneficial owner. In this case, though the investment in shares and securities has been made by the company but the securities are not held by it in its own name.

When the above situation arises, the company shall maintain a register which shall contain such particulars as may be prescribed (refer Rule 14 below) and such register shall be open to inspection by any member or debenture-holder of the company without any charge during business hours subject to such reasonable restrictions as the company may by its articles or in general meeting impose.

Provisions regarding maintenance of register as per Rule 14: The requirements of Rule 14 of the Companies (Meetings of Board and its Powers) Rules, 2014 are as under:

(a) Maintenance of Register: From the date of its registration, every company shall maintain a register in Form MBP-3.

(b) Entry of particulars of investments: The company shall enter in the register, chronologically, the particulars of investments in shares or other securities beneficially held by the company but which are not held in its own name. It shall also record the reasons for not holding the investments in its own name and the relationship or contract under which the investment is held in the name of any other person.

(c) The company shall also record whether such investments are held in a third party's name for the time being or otherwise.

(d) Place: The register shall be maintained at the registered office of the company and shall be preserved permanently.

(e) Custody of register: The register shall be kept in the custody of the company
secretary of the company or if there is no company secretary, any director or any other officer authorized by the Board.

(f) Authentication of entries: The entries in the register shall be authenticated by the company secretary of the company or by any other person authorized by the Board for the purpose.

Securities held by any person in which the company holds beneficial interest, compliance of section 89 requires declaration in respect of beneficial interest of any securities.

(iv) Punishment for contravention [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.