Section 187 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.
Section 187 requires every investment a company makes or holds in any property, security or other asset to be made and held in the company's own name. It then lists the situations in which the company may depart from that rule, and it sets a penalty for default.
All investments made or held by a company must be made and held in its own name. The exceptions are a nominee holding of subsidiary shares to keep the subsidiary's membership above the statutory minimum, deposits with bankers, holdings as security for a loan or obligation, and holdings in the name of a depository. Where a depository holds them, the company must keep a register open to members and debenture-holders. Default attracts a penalty of Rs 5 lakh on the company and Rs 50,000 on every officer in default.
The basic rule: sub-section (1)
Sub-section (1) says 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 phrase "property, security or other asset" is wide. It is not limited to shares. A company buying land, mutual fund units or debentures should see the asset registered in the company's name, and not in the name of a director, promoter or relative.
The reason is simple. Assets put in a person's own name can be treated as that person's, with consequences for creditors, members and auditors. Section 187 keeps the company's balance sheet and the registered title in step.
The one proviso: nominees for subsidiary shares
The proviso to sub-section (1) lets a company hold shares in its subsidiary in the name of a nominee or nominees, "if it is necessary to do so, to ensure that the number of members of the subsidiary company is not reduced below the statutory limit". This is the familiar case of a private company needing at least two members: the holding company puts one share in a nominee's name so that the subsidiary has the minimum number of members. The exception exists only for that purpose. It does not allow nominee holdings in other circumstances.
Sub-section (2): what the section does not prevent
Sub-section (2) says nothing in the section prevents a company from:
| Clause | Permitted arrangement |
|---|---|
| (a) | Depositing with a bank, being the company's bankers, shares or securities for the collection of any dividend or interest payable on them |
| (b) | Depositing with, transferring to, or holding in the name of the State Bank of India or a scheduled bank, being the company's bankers, shares or securities, to facilitate their transfer |
| (c) | Depositing with, or transferring to, any person any shares or securities by way of security for repayment of a loan advanced to the company or performance of an obligation undertaken by it |
| (d) | Holding investments in the name of a depository when the securities are held by the company as a beneficial owner |
Clause (b) has a time limit built in. If within six months from the date the shares or securities are transferred to, or first held in the name of, the State Bank of India or the scheduled bank, no transfer takes place, the company must, as soon as practicable after that period, have them re-transferred to it or again hold them in its own name.
Clause (c) is what allows a company to pledge shares it owns as security for its borrowings. Clause (d) is the everyday case: a company holding listed shares in demat form has them recorded in the depository's system in the name of the depository as registered owner, while the company is the beneficial owner.
If you are reviewing how your holdings are recorded, our legal consultation team can help you check the registers against the statutory exceptions.
Sub-section (3): the register
Where, under clause (d), securities in which a company has invested are not held in its own name, the company must maintain a register containing such particulars as may be prescribed. The register is open to inspection by any member or debenture-holder of the company without any charge, during business hours, subject to reasonable restrictions the company may impose by its articles or in general meeting.
This gives members a way to see what the company owns through depositories. It works alongside the rules on loans and investments in section 186, which govern how much a company may invest and who must approve it. Section 187 is about how the holding is titled. Section 186 is about whether and how much the company may invest.
Sub-section (4): penalty
The footnote in the consolidated text shows sub-section (4) was substituted by Act 29 of 2020 with effect from 21 December 2020. As it now stands: if a company is in default in complying with the section, the company is liable to a penalty of five lakh rupees, and every officer of the company who is in default is liable to a penalty of fifty thousand rupees.
| Who | Consequence |
|---|---|
| The company | Penalty of Rs 5,00,000 |
| Each officer in default | Penalty of Rs 50,000 |
The text does not add a daily continuing penalty, and it does not prescribe imprisonment.
Practical examples
Example 1: investment in a director's name. A private company buys a plot of land but the sale deed is registered in its managing director's name "for convenience". That is an investment in property not held in the company's own name, and no exception in sub-section (2) fits. The company and the officer in default face the section 187(4) penalty.
Example 2: subsidiary membership. A holding company owns all but one share of its private subsidiary and puts that one share in a nominee's name so the subsidiary retains two members. The proviso covers this.
Example 3: demat holdings. A company holds listed shares in a demat account. Clause (d) covers it, and the company keeps the register required by sub-section (3) for inspection by members.
Points to check in your own company
- Whether every property and security is registered in the company's own name, or falls within an exception.
- Whether nominee shares in a subsidiary are really needed to meet the minimum membership.
- Whether shares given to a bank are covered by clause (b), and whether the six-month return has been followed up.
- Whether a register for depository holdings is kept and available for inspection without charge.
Need help with company investments and registers?
If you are not sure that your company's investments are titled correctly, or you need a register set up for depository holdings, we can review the position with you. Reach out through our legal consultation service.
Key takeaways
- Investments in property, securities or other assets must be made and held in the company's own name.
- A nominee may hold subsidiary shares only to keep the subsidiary's membership at the statutory minimum.
- Holdings with bankers, as security for loans, and through a depository are allowed under sub-section (2).
- A register of depository-held securities must be open to members and debenture-holders without charge.
- Default: Rs 5 lakh on the company and Rs 50,000 on each officer in default.
Read next
- Section 186: Loans and Investments by Company
- How to Make an Inter-corporate Loan or Investment: Section 186 Process
- Section 151 of the Companies Act, 2013: Small shareholders' director
- Section 214–215 of the Companies Act, 2013: Investigation costs and inspector eligibility
Disclaimer: Based on the Companies Act, 2013 as amended up to 1 April 2021 (official consolidated text), read with later developments noted in the article; proposals in the Corporate Laws (Amendment) Bill, 2026 are pending and not law as on 30 September 2026. Verify current notifications and rules before acting.