MCA Proposes Section 186 Exemption for IFSCA-Registered Finance Companies

Public Notice No. 1/32/2013-CLV(Part), Dated: 26.06.2025

1. Background – Section 186 of the Companies Act, 2013

Section 186 of the Companies Act, 2013 governs the granting of loans, guarantees, securities, and investments by companies. It imposes thresholds, approval requirements, and disclosure obligations to ensure financial prudence and accountability. However, certain exemptions are granted to regulated entities, such as NBFCs, when these activities are part of their ordinary course of business.

2. Current Exemption Under Rule 11 of the Companies (Meetings of Board and its Powers) Rules, 2014

Rule 11 of the Companies (Meetings of Board and its Powers) Rules, 2014 currently provides an exemption from the provisions of Section 186 (except sub-section 1) for:

• Non-Banking Financial Companies (NBFCs) registered with the Reserve Bank of India (RBI), and
• Engaged in the business of lending or providing loan-related guarantees or securities in the ordinary course of their business.

This exemption helps ease compliance for RBI-regulated NBFCs whose core activities involve such financial transactions.

3. Proposed Amendment – Inclusion of IFSC-Registered Finance Companies

The Ministry of Corporate Affairs (MCA) has now proposed an amendment to Rule 11 to extend the same exemption to Finance Companies registered with the International Financial Services Centres Authority (IFSCA).

This means that such IFSC-registered finance companies would no longer be subject to the detailed procedural and approval-related requirements under Section 186 (except sub-section 1) when undertaking:

• Lending,
• Providing guarantees, or
• Offering securities in the ordinary course of their business.

4. Rationale Behind the Proposal

• Level Playing Field – The amendment seeks to ensure regulatory parity between RBI-regulated NBFCs and IFSCA-registered finance companies.
• Ease of Doing Business – It aligns with the Government’s broader initiative to reduce regulatory burdens and enhance operational flexibility in India’s International Financial Services Centres (IFSCs).
• Support Financial Sector Growth – By enabling greater freedom in conducting routine financial transactions, the change could facilitate increased credit flow, innovation, and competitiveness in the IFSC ecosystem.

5. Implications of the Proposed Amendment

• Simplified Compliance – IFSC-registered finance companies will benefit from streamlined approval processes for routine lending activities.
• Boost to IFSC Ecosystem – The move may encourage more finance entities to set up operations in GIFT City, India’s first IFSC.
• Harmonisation of Regulations – The proposed change furthers the harmonisation of regulatory treatment for financial institutions governed by different statutory bodies.

6. Conclusion

The MCA’s proposal to amend Rule 11 and extend the Section 186 exemption to IFSCA-registered finance companies is a strategic step towards enabling ease of business within India’s financial hubs. If implemented, this will bring regulatory consistency and promote greater participation in IFSCs, thereby fostering financial innovation and cross-border financial services.

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