Section 187 requires every investment a company makes or holds in any property, security or other asset to be made and held in its own name. The rule protects the company’s assets from being held by others in ways that are hard to trace.

The section permits a few exceptions, and where any of them is used, the company is required to keep a register recording why. This article sets out the exceptions and the steps to follow when one applies.

Permitted Exceptions

Step-by-Step Procedure

Step 1: Identification of the Exception – before the arrangement is made
(Applicable to All Companies)
Section 187(1) and (2) of the Companies Act, 2013

The proposed arrangement is required to fall within one of the exceptions above. Any holding outside these exceptions breaches Section 187(1).

Step 2: Notice and Agenda for the Board Meeting – at least 7 days before the meeting
(Applicable to All Companies)
Section 173(3) of the Companies Act, 2013 read with SS-1

• Notice of the Board Meeting is required to be given in writing to every director at the address registered with the company, by hand, post or electronic means.
• The notice is required to be accompanied by the agenda, notes on agenda, draft resolutions and supporting papers for the arrangement to hold an investment otherwise than in the company’s own name.
• A meeting to transact urgent business may be called at shorter notice, provided at least one independent director (if any) is present. If none is present, the decisions are final only on ratification by at least one independent director.

Step 3: Board Meeting to Approve the Arrangement – on the date fixed
(Applicable to All Companies)
Section 187 of the Companies Act, 2013 read with Rule 14(1)

• The Board is required to approve the arrangement, record the reasons for not holding the investment in the company’s own name, and note the relationship or contract under which it is held by another person.
• Where shares in a subsidiary are held by nominees, the nominees file Form MGT-4 and the company files MGT-5 with the subsidiary under Section 89.
• MGT-14 is not required, as the resolution is not a Section 179(3) matter.

Step 4: Minutes of the Board Meeting – draft within 15 days, signed within 30 days
(Applicable to All Companies)
Section 118 of the Companies Act, 2013 read with Paragraph 7 of SS-1

• Draft minutes are required to be circulated to all members of the Board within 15 days of the meeting. Members may give their comments within 7 days of receipt.
• Minutes are required to be entered in the Minutes Book within 30 days of the meeting and signed by the Chairman.
• A copy of the signed minutes is required to be circulated to all members within 15 days of signing.

Step 5: Entry in Register MBP-3 – chronologically, as the arrangement arises
(Applicable to All Companies)
Section 187(3) of the Companies Act, 2013 read with Rule 14(1) and 14(2)

• Particulars of each investment not held in the company’s own name, the reasons and the relationship or contract are required to be entered in Form MBP-3.
• Every entry is required to be authenticated by the Company Secretary or, where there is none, by a director authorised by the Board.

Step 6: Inspection of the Register – on an ongoing basis
(Applicable to All Companies)
Section 187(3) of the Companies Act, 2013 read with Rule 14(3)

The register is required to be open for inspection by members and debenture holders without charge, subject to reasonable restrictions in the Articles or by general meeting, for at least 2 hours on each business day.

Step 7: Re-transfer after 6 Months (bank facilitation) – if no transfer within 6 months
(Applicable to All Companies)
Proviso to Section 187(2)(b) of the Companies Act, 2013

Where shares or securities were transferred to a bank to facilitate a transfer and the transfer has not happened within 6 months, the company is required to have them re-transferred to itself, or held again in its own name, as soon as practicable.

Penalties for Non-Compliance

Section 187 at a Glance

Day 0 = Date the investment is first held otherwise than in the company’s own name