A company should normally make and hold investments in its own name. An authorised investment and a correct ledger balance do not cure an unsupported holding in a director’s or another person’s name. Section 187 provides specific exceptions; identify the actual exception and retain evidence of its conditions.
This Companies Act, 2013 guide was checked on 24 October 2026. It concerns investment title and custody, not a complete section 186 limit calculation, securities-law assessment or beneficial-ownership filing opinion. Each of those may require a separate review.
Map the legal exception before accepting a different name
The official text of section 187 covers investments in property, securities and other assets. Its subsidiary-share proviso permits nominees where necessary to maintain the subsidiary’s statutory minimum membership. Subsection (2) separately addresses collection through the company’s bankers, specified bank arrangements facilitating transfer, security for the company’s borrowing or obligations, and depository holdings with the company as beneficial owner.
This is a purpose-specific list. A director’s convenience, an informal promise to transfer later, or evidence that company funds paid the consideration does not independently establish one of these exceptions. Read the instrument, account title and beneficial-owner record. A custodian’s confirmation should identify the company and the particular assets rather than merely confirm that someone holds a portfolio.
The six-month condition belongs to the bank-transfer exception
Section 187(2)(b) concerns the State Bank of India or a scheduled bank that is the company’s banker, where the arrangement facilitates transfer. If no transfer takes place within six months from the relevant initial transfer or holding date, the company must have the securities re-transferred or again held in its own name as soon as practicable after expiry. Maintain the initial date, six-month checkpoint, transfer status and corrective-action evidence.
Do not apply this exact six-month proviso indiscriminately to every nominee or every pledge. Conversely, a bank confirmation does not show compliance unless the permitted purpose and relevant dates are established. Escalate an approaching checkpoint while there is still time to obtain instructions and documentation.
MBP-3 connects legal title to the investment records
Section 187(3) expressly addresses the register for depository holdings described in subsection (2)(d), and permits members and debenture-holders to inspect without charge during business hours, subject to reasonable restrictions. Rule 14 provides the MBP-3 register framework for beneficially held shares or securities not held in the company’s own name. The ICSI Chapter XII checklist, item 85 sets out chronological entries, reasons and relationship or contract, temporary status, registered-office location, permanent preservation, custody and authentication controls. That older professional checklist is used here for these register controls, not for superseded penalty text. The actual Rule 14(3)–(4) requires permanent preservation at the registered office and custody by the company secretary; if there is no company secretary, custody may be with a director or another officer authorised by the Board. Entries must be authenticated by the company secretary or another person authorised by the Board. Keep the custody and authentication requirements distinct.
As a practical reconciliation, connect the register entry to the Board authority, purchase or transfer evidence, holder or depository details, security identifier, quantity, acquisition cost and subsequent disposal. Where a number changes, retain the movement trail rather than replacing the old entry with an unexplained closing figure. MBP-3 records the arrangement; it does not grant permission for an otherwise impermissible arrangement.
Keep ownership, encumbrance and approval conclusions distinct
A security interest may restrict disposal while the company retains an investment exposure. Record the pledged quantity and relevant obligation alongside the investment quantity. Do not reduce the number of securities by the loan balance or confuse accounting presentation with legal ownership. Check that any reliance on the security exception concerns a loan advanced to the company or an obligation undertaken by it.
A company may also need investment approvals, disclosures or declarations under other provisions. Neither the section 187 exception nor completion of MBP-3 establishes that those requirements have been satisfied. In particular, a nominee arrangement should have a separate beneficial-interest and disclosure review rather than an assumption that the subsidiary proviso waives every filing.
The current official section 187(4) states a ₹5 lakh company penalty and ₹50,000 for each officer in default. Identify the actual default, officer responsibility and any applicable statutory relief before estimating exposure. Old summaries describing the previous punishment should not be used as the current penalty schedule.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: A necessary subsidiary nominee
Assume a subsidiary’s applicable minimum membership is two and the company beneficially owns 1,000 shares. Holding 999 in its own name and one through a necessary nominee gives 999 + 1 = 1,000 beneficially held shares. The one-share arrangement must satisfy the statutory necessity; the nominee holding does not reduce the company’s beneficial investment to 999 shares.
Illustrative example 2: A director’s personal deposit is not a routine exception
A company pays ₹5,00,000 for an investment deposit opened in a director’s personal name. The ledger shows the same ₹5,00,000. The numerical difference is zero, but the title issue remains. On these stated facts, payment by the company and ledger agreement alone do not establish a section 187 exception.
Illustrative example 3: A depository quantity mismatch
The company’s investment schedule records 6,000 units but its beneficial-owner statement shows 5,900. The unexplained difference is 100 units. Investigate settlement, corporate actions and errors before signing off. An apparent depository exception cannot replace the evidence that the company is the beneficial owner of the actual quantity.
Illustrative example 4: The bank-transfer checkpoint
Assume qualifying transfer-facilitation securities first stand in the scheduled banker’s name on 10 January 2026. The six-calendar-month checkpoint is 10 July 2026. If no onward transfer occurs within that period, organise re-transfer or restoration to the company’s name as soon as practicable after expiry and document the action. This is not a new discretionary six-month extension.
Illustrative example 5: Pledged investments and a loan are different records
Assume investments with an accepted carrying amount of ₹10,00,000 secure a ₹6,00,000 company loan under a valid arrangement. The arithmetic difference is ₹4,00,000, but it is not a legal-title or investment-quantity measure. Track the full investment and the security restriction separately; this example does not prescribe balance-sheet offsetting.
Illustrative example 6: Collection through the banker
The company’s banker collects a dividend of ₹2 per share on 5,000 shares held under a qualifying collection arrangement. Expected collection is ₹10,000. Reconcile that receipt to the specific holding and collection mandate. Receipt through the banker does not itself establish an unrestricted transfer of beneficial ownership to the banker.
Illustrative example 7: An explicitly qualified penalty estimate
Assume a default has been established, three officers have separately been found to be officers in default, and no statutory reduced-penalty relief applies. The section 187(4) arithmetic is ₹5,00,000 + 3 × ₹50,000 = ₹6,50,000. This is a stated-fact estimate, not a rule that every director is automatically liable or that relief can be ignored.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Identify all investments and registered names. | Asset schedule, certificates and account titles. |
| 2 | Reconcile beneficial quantities and amounts. | Ledger, depository and custodian statements. |
| 3 | Map each different-name holding to its legal basis. | Documented section 187 exception analysis. |
| 4 | Test the necessity of subsidiary nominee holdings. | Membership requirement and nominee documentation. |
| 5 | Verify bank purpose and banker status. | Collection or transfer mandate and bank evidence. |
| 6 | Track the subsection (2)(b) six-month checkpoint. | Original date, transfer status and action diary. |
| 7 | Record security arrangements independently. | Pledge instruments and company obligation evidence. |
| 8 | Complete and authenticate applicable MBP-3 entries. | Chronological register with reasons and holder details. |
| 9 | Check custody, preservation and inspection access. | Custodian authority and inspection log. |
| 10 | Close unresolved title issues and cross-statute requirements. | Corrective transfers, approvals and disclosure review. |
Sixteen practitioner FAQs
1. Does Board approval alone satisfy section 187?
No. Approval authority and the name in which the asset is held are separate compliance questions.
2. Can every investment be placed in a director’s name?
No. Identify a statutory exception rather than relying on convenience or an undertaking.
3. Is the subsidiary nominee proviso unlimited?
No. Its stated purpose is maintaining the subsidiary’s statutory minimum membership.
4. Does a nominee share necessarily cease to be the company’s beneficial investment?
No. Reconcile beneficial ownership separately from the registered holder, supported by the arrangement.
5. Is every bank custody arrangement the transfer exception?
No. Distinguish collection, transfer facilitation and security purposes and test the relevant clause.
6. When does the six-month bank-transfer review start?
From the relevant date the securities are transferred to, or first held in the name of, the specified banker under that arrangement.
7. Does expiry allow another automatic six months?
No. If the stated condition is met, restoration is required as soon as practicable after expiry.
8. Does the same six-month wording govern every pledge?
Do not assume so. The proviso is attached to subsection (2)(b); analyse other arrangements under their own conditions.
9. What makes a depository holding acceptable under the section?
The investments must be securities held by the company as beneficial owner, with evidence linking the holding to the company.
10. Is MBP-3 an approval form that legalises any holding?
No. It is a register. An entry cannot supply a missing substantive exception.
11. Can MBP-2 simply substitute for MBP-3?
They address different statutory purposes. Maintain the applicable registers and reconcile overlapping investment information.
12. Should a disposal erase the historical register entry?
Retain the chronological record and show the movement or disposal, with authentication and supporting evidence.
13. Who can inspect the statutory register?
Section 187(3) provides inspection for members and debenture-holders without charge during business hours, subject to reasonable restrictions.
14. Does the subsidiary exception waive beneficial-interest disclosures?
Do not infer a general waiver. Assess the relevant declarations and filings independently.
15. Are all directors automatically included in the penalty multiplication?
No. The provision refers to officers in default. Responsibility and applicable relief require a separate legal assessment.
16. What should a closing review deliver?
A holding-by-holding title reconciliation with the exception, register reference, unresolved difference and responsible corrective-action owner recorded.
Conclusion
Treat section 187 as a title-and-evidence control. Identify the permitted arrangement, reconcile the beneficial holding, maintain the applicable register and actively manage the specific bank-transfer deadline without assuming that approvals or bookkeeping cure title defects.