Companies Act Section 187 — Investments of company to be held in its own name
CHAPTER XII MEETINGS OF BOARD AND ITS POWERS
Commercial / Corporate
Summary
Sub-section (1) states that all investments a company makes or holds in any property, security, or other asset must be made and held in the company's own name. However, there is an exception: the company may hold shares in its subsidiary company in the name of a nominee or nominees, if doing so is necessary to keep the number of members of the subsidiary company from falling below the statutory limit.
Sub-section (2) clarifies that this section does not prevent a company from doing certain things. Under clause (a), the company may deposit any shares or securities with a bank that is its banker, for the purpose of collecting any dividend or interest payable on them. Under clause (b), the company may deposit with, transfer to, or hold in the name of the State Bank of India or a scheduled bank (being its banker) any shares or securities, in order to make their transfer easier. But if no transfer of those shares or securities happens within six months from the date they were transferred to or first held in the name of that bank, the company must, as soon as practicable after that six-month period ends, have the shares or securities re-transferred to itself from the bank, or again hold them in its own name. Under clause (c), the company may deposit with or transfer to any person any shares or securities as security for repaying a loan advanced to the company or for performing any obligation it has undertaken. Under clause (d), the company may hold investments in the name of a depository when those investments are in the form of securities held by the company as a beneficial owner.
Sub-section (3) says that when, under clause (d) of sub-section (2), a company's investments in shares or securities are not held in its own name, the company must maintain a register containing such particulars as may be prescribed. This register must be open for inspection by any member or debenture-holder of the company without any charge during business hours, subject to reasonable restrictions that the company may impose through its articles or in a general meeting.
Sub-section (4) states that if a company is in default in complying with the provisions of this section, the company is liable to a penalty of five lakh rupees, and every officer of the company who is in default is liable to a penalty of fifty thousand rupees.
Official Text
(1) All investments made or held by a company in any property, security or other asset shall be made and held by it in its own name:
Provided that the company may hold any shares in its subsidiary company in the name of any nominee or nominees of the company, if it is necessary to do so, to ensure that the number of members of the subsidiary company is not reduced below the statutory limit.
(2) Nothing in this section shall be deemed to prevent a company—
(a) from depositing with a bank, being the bankers of the company, any shares or securities for the collection of any dividend or interest payable thereon; or
(b) from depositing with, or transferring to, or holding in the name of, the State Bank of India or a scheduled bank, being the bankers of the company, shares or securities, in order to facilitate the transfer thereof:
Provided that if within a period of six 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, the State Bank of India or a scheduled bank as aforesaid, 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 the State Bank of India or the scheduled bank or, as the case may be, again hold the shares or securities in its own name; or
(c) from depositing with, or transferring 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) from holding investments in the name of a depository when such investments are in the form of securities held by the company as a beneficial owner.
(3) Where in pursuance of clause (d) of sub-section (2), any shares or securities in which investments have been made by a company are not held by it in its own name, the company shall maintain a register which shall contain such particulars as may be prescribed 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. 1[
(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.]