CARO 2020 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clause (iii) of paragraph 3 of CARO 2020 is the longest of the four: it makes the auditor report on investments, guarantees, security, loans and advances in six sub-clauses. Clause (iv) asks about compliance with sections 185 and 186, clause (v) about deposits, and clause (vi) about cost records. This article is based on the Order as amended up to the notification of 24 March 2020 per the MCA e-book. Later amendments should be checked.
Clause (iii) asks whether the company made investments in, provided any guarantee or security or granted any loans or advances in the nature of loans to companies, firms, LLPs or any other parties and, if so, answers six sub-clauses (a) to (f): aggregate amounts and balances, whether the terms are prejudicial, repayment schedule, amounts overdue for more than ninety days, renewals or fresh loans to settle overdues, and loans repayable on demand or without terms. Clause (iv) asks whether sections 185 and 186 have been complied with, clause (v) whether the deposit directives and sections 73 to 76 have been complied with, and clause (vi) whether cost records are specified and maintained.
Clause (iii): investments, guarantees, security, loans and advances
The opening question: whether during the year the company has made investments in, provided any guarantee or security or granted any loans or advances in the nature of loans, secured or unsecured, to companies, firms, Limited Liability Partnerships or any other parties. If so:
| Sub-clause | What the auditor reports | Limits and notes |
|---|---|---|
| (a) | Whether during the year the company has provided loans or advances in the nature of loans, or stood guarantee, or provided security to any other entity; if so, the aggregate amount during the year and the balance outstanding at the balance sheet date: (A) to subsidiaries, joint ventures and associates; (B) to parties other than subsidiaries, joint ventures and associates | Not applicable to companies whose principal business is to give loans |
| (b) | Whether the investments made, guarantees provided, security given and the terms and conditions of the grant of all loans and advances in the nature of loans and guarantees are not prejudicial to the company's interest | - |
| (c) | For loans and advances in the nature of loans, whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are regular | - |
| (d) | If the amount is overdue, the total amount overdue for more than ninety days, and whether reasonable steps have been taken for recovery of principal and interest | - |
| (e) | Whether any loan or advance in the nature of loan which fell due during the year has been renewed or extended, or fresh loans granted to settle the overdues of existing loans to the same parties; if so, the aggregate amount of such dues renewed, extended or settled by fresh loans, and the percentage of that aggregate to the total loans or advances in the nature of loans granted during the year | Not applicable to companies whose principal business is to give loans |
| (f) | Whether the company has granted any loans or advances in the nature of loans either repayable on demand or without specifying any terms or period of repayment; if so, the aggregate amount, the percentage to the total loans granted, and the aggregate amount of loans granted to Promoters and related parties as defined in section 2(76) of the Companies Act | - |
Three practical observations follow from the wording. Sub-clauses (a) and (e) carry an express carve-out for companies whose principal business is to give loans; the other sub-clauses do not. Sub-clause (a) splits the figures into two groups, so the company's schedule must separate subsidiaries, joint ventures and associates from all other parties. And sub-clause (d) uses a fixed test: the amount overdue for more than ninety days.
Clause (iv): sections 185 and 186
In respect of loans, investments, guarantees and security, whether the provisions of sections 185 and 186 of the Companies Act have been complied with, and, if not, the details. The Act's rules on loans to directors are explained in Section 185: Loan to Directors, on loans, investments and guarantees in Section 186: Loans and Investments, and on how they interact in Sections 185 and 186: Loans and Guarantees to Holding, Subsidiary and Group Companies. The Meetings of Board rules that sit under section 186 are in Rules 11 and 13. An auditor's answer here depends on whether the company has the approvals and registers section 186 requires. Our financial and legal due diligence service can test a company's loan book against both sections before the audit.
Clause (v): deposits
In respect of deposits accepted by the company or amounts which are deemed to be deposits, whether the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act and the rules made thereunder, where applicable, have been complied with; if not, the nature of the contraventions is stated. If an order has been passed by the Company Law Board, the National Company Law Tribunal, the Reserve Bank of India, any court or any other tribunal, the auditor says whether it has been complied with. The meaning of a deposit and the exempted receipts are explained in Rules 1 and 2 of the Deposits Rules.
Clause (vi): cost records
Whether maintenance of cost records has been specified by the Central Government under section 148(1) of the Companies Act and whether such accounts and records have been so made and maintained. Which companies must keep cost records is set out in Rules 1 to 3 of the Cost Records and Audit Rules, and the audit thresholds in Rules 4 and 5. The Board's report also carries a disclosure on cost records under rule 8(5)(ix) of the Accounts Rules; see Rule 8.
A worked example
Birch Infra Limited (invented) lends to a wholly owned subsidiary, guarantees a bank loan of a joint venture and has an advance outstanding to an unrelated trader. The auditor's report under clause (iii)(a) states the aggregate amounts during the year and balances at year-end separately for the group entities and for the trader. Under (c) and (d) the auditor notes that repayment schedules exist and that the trader's advance is overdue for more than ninety days, with the total amount and the recovery steps. Under (e) the auditor reports that a fresh advance was given to the same trader to settle an old overdue, with the aggregate amount and the percentage of the year's loans. Under (f) a demand loan to a promoter-related company is reported with the aggregate and percentage. Clause (iv) records compliance with sections 185 and 186; clause (v) records no deposits; clause (vi) records that cost records are not specified for the company.
Practical points
- Build the loan schedule in the shape of sub-clause (a): two groups, with the year's aggregate and the closing balance in each.
- Keep an ageing report that isolates overdues beyond ninety days.
- Identify renewals and "fresh loans to settle overdues" in the loan ledger, since sub-clause (e) asks for the percentage.
- Tag each loan repayable on demand or without a stated term, and each loan to promoters and related parties.
Need help with the loans and deposits clauses?
These clauses depend on a clean loan register and a clear approval trail. We can prepare the schedules and test compliance with sections 185 and 186 through our financial and legal due diligence service.
Key takeaways
- Clause (iii) has six sub-clauses; (a) and (e) do not apply to companies whose principal business is to give loans.
- The ninety-day overdue test is in (d); demand loans and loans with no terms are in (f).
- Clause (iv): sections 185 and 186 compliance.
- Clause (v): deposits, with the Reserve Bank directives and sections 73 to 76.
- Clause (vi): cost records under section 148(1).
Read next
- Section 185: Loan to Directors
- Section 186: Loans and Investments
- Rules 1 and 2 of the Deposits Rules
- Clauses (i) and (ii): property, plant and equipment and inventory
Disclaimer: Based on the Companies Act, 2013 rules (and the Companies (Auditor's Report) Order, 2020) named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.