Legislative History of Section 186:

Granting of inter-corporate loans, making investments and provisions for guarantees was previously regulated by Sections 370 and 372 of the Companies Act, 1956 (the“1956 Act”), which mandated prior Central Government approval (along with compliance with certain other stringent guidelines prescribed by the Ministry of Corporate Affairs) for giving loans/ guarantee/ security in excess of the limits prescribed under the said sections. This position was subsequently changed with the enactment of Section 372A of the 1956 Act (by the Companies (Amendment) Act, 1999), which replaced the need to obtain prior government approval with a self-regulatory mechanism, which mandated prior shareholder approval by a special resolution before granting inter-corporate loans, guarantees or securities beyond the limits prescribed therein..Continue Reading Key issues under Section 186 for a corporate lawyer