A company may own an investment economically but still find that the security is recorded in another name. Section 187 of the Companies Act, 2013 starts with a simple rule: investments made or held by a company should be made and held in the company’s own name. The important part is knowing when the Act itself permits a different holding arrangement and what records the company should maintain when it uses one.
The current text of Section 187 sets out the own-name rule, the permitted exceptions and the statutory register requirement. Rule 14 of the Companies (Meetings of Board and its Powers) Rules, 2014 prescribes Form MBP-3 for investments in shares or other securities that are beneficially held by the company but are not held in its own name; the official MCA rules text sets out the particulars and custody requirements.
Section 187 answers a different question from Section 186
Before looking at nominees, depositories or banks, separate two compliance questions. Section 186 governs important limits, approvals and conditions for loans, guarantees, security and investments. Section 187 is concerned with the name in which the company’s investment is made or held.
A company can therefore satisfy the approval conditions for making an investment and still have a Section 187 problem if the investment is left in another person’s name without a statutory basis. The review should cover both the authority to make the investment and the way legal or recorded ownership is maintained.
The default rule is to hold the investment in the company’s own name
Section 187(1) applies broadly to investments made or held by a company in property, securities or other assets. As a starting point, the investment should be made and held in the company’s own name.
This is useful as a control rule. When an investment register, demat statement, bank confirmation or title record shows a different name, the finance or secretarial team should not assume that the difference is harmless. It should identify the legal reason for the arrangement and document which Section 187 exception supports it.
Five situations where another name can be legitimate
1. Nominee shares in a subsidiary
The proviso to Section 187(1) allows a company to hold shares in its subsidiary in the name of a nominee or nominees where this is necessary to prevent the subsidiary’s number of members from falling below the statutory minimum.
The exception is purpose-specific. It should not be treated as a general permission to park company investments in directors’, employees’ or other persons’ names. A file using the subsidiary-nominee exception should make clear why the nominee holding is needed and that the company remains the real investor.
2. Securities deposited with the company’s banker to collect dividend or interest
Section 187(2)(a) permits shares or securities to be deposited with a bank that is the company’s banker for collection of dividend or interest. The economic purpose here is collection, not a transfer of the company’s investment to the bank.
3. Securities held with a scheduled bank to facilitate a transfer
Section 187(2)(b) permits shares or securities to be deposited with, transferred to or held in the name of the State Bank of India or a scheduled bank that is the company’s banker when this is done to facilitate transfer of the securities.
This exception has a time control. If no transfer takes place within six months from the date the securities were transferred to, or first held in the name of, the bank, the company must as soon as practicable have them re-transferred to it or again held in its own name. A company using this route should therefore track the six-month point rather than leaving the temporary arrangement open indefinitely.
4. Securities given as security for a loan or another obligation
Section 187(2)(c) allows shares or securities to be deposited with or transferred to another person by way of security for repayment of a loan advanced to the company or performance of an obligation undertaken by it.
The supporting records should show the underlying loan or obligation and why the security was transferred or deposited. That makes it easier to distinguish a permitted security arrangement from an unexplained third-party holding.
5. Securities held through a depository
Section 187(2)(d) expressly permits investments to be held in the name of a depository when the securities are held with the company as the beneficial owner. This is the normal legal structure behind dematerialised securities: the depository name appears in the statutory holding chain while the investing company retains the beneficial interest.
Beneficial ownership in this context should not be confused with the separate beneficial-interest disclosure process under Section 89. Section 89 deals with declarations where registered ownership and beneficial interest in shares differ; Section 187 asks whether a company’s own investments are being held in a permitted name and whether the required company records are maintained.
Where Form MBP-3 fits
Section 187(3) expressly requires a register where securities are held through the depository route described in Section 187(2)(d). Rule 14 supplies the operational format. It requires every company to maintain a register in Form MBP-3 and to enter, chronologically, particulars of investments in shares or other securities that are beneficially held by the company but are not held in its own name.
Rule 14 also requires the register to record the reason why the investment is not held in the company’s name and the relationship or contract under which another person holds it. The company should also record whether the investment is held in a third party’s name for the time being or otherwise.
This makes MBP-3 more than a list of securities. Its practical value is that it connects each non-own-name holding to the legal and commercial reason for that structure. A reviewer should be able to move from the security to the holder, the reason, the supporting relationship and the eventual disposal or continuing balance without reconstructing the story from scattered documents.
How the MBP-3 record should be controlled
Rule 14 requires the register to be maintained at the registered office and preserved permanently. It is kept in the custody of the company secretary; if there is no company secretary, the rule permits custody with a director or another officer authorised by the Board. Entries are authenticated by the company secretary or another person authorised by the Board.
Section 187(3) also provides an inspection right for members and debenture-holders without charge during business hours, subject to reasonable restrictions imposed through the articles or in general meeting. This is another reason the register should be kept as a proper statutory record rather than as an informal spreadsheet with unexplained balances.
A practical review workflow
- Start from the complete investment list. Reconcile investments in the general ledger with demat statements, physical certificates where relevant, bank records and other title evidence.
- Flag every investment not shown in the company’s own name. Do not limit this review to equity shares; Section 187 itself uses broader language covering property, securities and other assets.
- Identify the statutory basis. Determine whether the arrangement is a subsidiary nominee holding, a banker collection arrangement, a temporary bank holding for transfer, a security arrangement or a depository holding.
- Check time-sensitive conditions. For securities held with a scheduled bank to facilitate transfer, track the six-month rule and restore the holding to the company’s name if the contemplated transfer does not happen.
- Update MBP-3 where applicable. Record the beneficially held securities, holder details, reason for the different name and the supporting relationship or contract in chronological order.
- Keep Board and custody records aligned. The investment approval trail, MBP-3 entries and underlying demat, banking or security documents should describe the same arrangement.
- Review Section 186 separately. A valid holding structure under Section 187 does not itself prove that the investment complied with Section 186 limits, approvals or other conditions.
Example: wholly owned subsidiary with nominee shareholders
Assume Holding Ltd owns the economic interest in all shares of Subsidiary Ltd, but a small number of shares are registered in nominee names solely so that the subsidiary does not fall below its statutory minimum number of members. Section 187(1) specifically recognises this type of nominee arrangement where it is necessary for that purpose.
The compliance file should still make the arrangement transparent. It should identify the company as the investor, explain why nominee names are used, connect the holding to the subsidiary-member requirement and keep the relevant investment records consistent. The nominee exception should not be extended to unrelated investments merely for convenience.
Example: listed shares in demat form
Assume a company buys listed shares through its demat account. The securities are held in the depository system, with the company recorded as beneficial owner. Section 187(2)(d) permits this structure, so the fact that the depository appears in the formal holding chain does not by itself breach the own-name rule.
The company should nevertheless maintain the statutory record required by Section 187 and Rule 14, keep the depository and beneficial-owner details traceable, and reconcile MBP-3 with the investment ledger and demat statements.
The control question to ask at every year-end
For each investment, ask: If the company’s name is not the name appearing on the legal or securities record, what exact provision permits that, and can the company prove the beneficial ownership and supporting reason?
That question catches the real Section 187 risk. The section is not designed to prohibit ordinary depository, banking or security arrangements. It is designed to stop company investments from being left in unexplained names without a clear statutory basis and record trail. A clean year-end file therefore links the investment decision, the permitted exception, MBP-3 where applicable and the underlying evidence.
