Investment Register in own name & ROC Investment Register not in own name

ROC Investment Register in own name & ROC Investment Register not in own name

 

What is Investment Register in own name?

Section 187 of the Companies Act, 2013 (the ‘Act’) which corresponds to section 49 of the erstwhile Companies Act, 1956 requires companies to hold all investments in its own name.

All investments made or held by Company in any property, security or other assets shall be made and held in its own name. Exception ‐ Holding of shares in subsidiary companies in the name of any nominee or nominees of the Company, to ensure number of members are not reduced below statutory limits

Entry in the Register maintained u/s 187

 

Section 187 (1) of the Act requires every company to make and hold all its ‘investments’ in its own name. Sub-section (2) of the section lays down exemptions in certain situations which allow companies to deviate from the above rule. One such situation is where the company is holding securities in the name of a depository as a beneficial owner.

 

To this, sub-section (3) to the section read with Rule 14 of the Companies (Meetings of Board and its Powers) Rules, 2014 requires companies in pursuance clause (d) of sub-section (2) to maintain a register in Form MBP 3 and enter therein the particulars of investments in shares or other securities beneficially held by the company but which are not held in its own name.

 

One point that becomes clear is that the requirement of keeping a register u/s 187 arises only if the shares are held in demat form. This becomes clear when the opening lines of section 187 (3) makes reference to clause (d) of sub-section (2) which pertains to demat holding of investments. Hence, the register u/s 187 (3) will not be required to be maintained in case the holding is in physical form.

 

Next we come to the question as to in which situations of demat holding does this register needs maintenance. The language of section 187 (3) is reproduced below:

 

‘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

 

This means that the requirement of keeping the register will be attracted only if the demated investments are not held by the company in its own name, even though the company is a beneficial owner of the securities.

In this scenario two interpretations may arise:

 

(i) The company is required to enter into the register details of all the investments which it holds as a beneficiary in the records of the depository. One may have this interpretation because sub-section (3) makes reference to clause (d) of sub-section (2) i.e. demat holdings which itself tantamounts to not holding of the shares in its own name but in the name of the beneficiary.

If the intent of the section was to include in the register all demated investments of the company, then in addition to this leading to a humongous work on the part of the company, it would only also lead to duplication of work considering that the depositories itself maintain a Register of Beneficial owners wherein the name of the company would be included and which is deemed to be a Register of Members pursuant to Section 88 (3) of the Act.

 

(ii) The other interpretation is that entry in the register would be required for only those investments in which a company is a beneficial owner, but its name is not entered in the Register of Beneficial Owners maintained by the depository.In this case, those demated investments in which the name of the company is appearing as a beneficial owner in the Register of Beneficial owners will not have to be included in the register. Only those investments, of which the company is a beneficiary, but someone else’s name is appearing in the Register of Beneficial owners will need entry in the register.

Sub-section (3) makes reference to Section 187 (2) (d). Sub-section (2) of Section 187 itself provides an exception i.e. in those cases the company will not need to hold the securities in its own name and the name in which they have been held would be sufficient compliance of the section. In pursuance of this exception (d), where the investments are not held by the company i.e. the company is not holding investments in the name of the depository, but someone else’s name is entered in the depository Register of beneficial owners, with the company as the actual beneficial owner will require entry in the register.

 

This view is further supported by the fact that the company needs to enter in the register the reasons for not holding in its own name and the relationship or contract under which these are held by any other person. If there are two interpretations – one which serves purpose of law, and the other which will leads to redundancy, the more practical and useful interpretation should be accepted. The first interpretation leads to an undesirable and absurd result and will only lead to duplication. The second situation offers a more logical and practical interpretation of the section.

Meaning of ‘investment’ u/s 187

Section 187 of the Act requires companies to hold ‘investments’ in its own name. In this regard Section 187 (1) of the Act reads as below:

‘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:’

The meaning of the word “investment” as occurring in Section 187 is quite different from what it means in Section 186. The meaning of investment under Section 186 is most definitely related to investments in securities of any body corporate. However as is evident from the language of Section 187, investment made or held by a company not only in securities, but also in ‘any property or other assets’ would define the purview of the section. The same was the stance under the corresponding Section 49 of the Companies Act, 1956, where the term’ all investments’ was used, whose interpretation cannot be limited to merely securities of the company.

Moving on, an ‘investment’ can obviously arise from an investment activity. As for the meaning of the expression “investment activity”, we may refer to Accounting Standard-3 which defines ‘investing activities’ as:

‘Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.’

Further, ‘operating activities’ are defined as:

‘principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities.’

Drawing cue from the definition of ‘operating activities’, which does not include investment activities, it is clear that “investment activity” and “operating activity” are mutually exclusive. What the company does as a part of its core business activity cannot be an investment. Investment is investment of a surplus or an amount which are not used in the core operations of the company.