Between February 2026 and now, the Ministry of Corporate Affairs has quietly rewired how Section 185 of the Companies Act 2013 gets enforced. Through notifications dated 10 February 2026, the Registrars of Companies have been formally appointed as adjudicating officers under Section 454, which means a director loan flagged in your statutory audit no longer waits for the NCLT queue — the local ROC can issue a penalty order in weeks. The numbers are unforgiving: ₹5 lakh to ₹25 lakh on the company, the same fine plus up to six months imprisonment on every officer in default, and an identical fine plus jail on the director who received the loan. For private companies between ₹5 crore and ₹500 crore in revenue — the sweet spot where founder advances are most common — this is the single most dangerous provision in the Companies Act after Section 164 disqualification.

The problem: why founder-director loans keep triggering ₹25 lakh orders

The pattern is almost identical across every adjudication order published on the MCA portal in the last twenty-four months. A growing private company has positive cash on its books. The founder, who is also the managing director, takes a short-term loan from the company — sometimes to fund a personal property, sometimes to bridge a personal tax outgo, often simply because the founder treats the company’s account as their own. The transaction is recorded in the books, sometimes as a loan, sometimes as an “advance”. The statutory auditor flags it under Section 185 in the next audit. By then, the ROC has the matter on its desk and the penalty clock has started.

The misconception that drives most of these orders is that a private limited company can do whatever its shareholders agree to. That was broadly true under the 1956 Act. It is no longer true under the Companies Act 2013. The 2013 Act is a regulator-driven statute that treats every limited liability company as a separate legal person, distinct from its founders, even if a single individual holds 99 percent of the equity and is the sole working director. Section 185 is the most visible expression of this principle.

The second misconception is that the exemption notification dated 5 June 2015 covers all private companies. It does not. The exemption applies only where every one of three conditions is satisfied. Many growing private companies fail the second condition the moment they take a working-capital line from their bank that exceeds twice their paid-up share capital, or the moment a body corporate — even a sister LLP — subscribes to a single share.

The penalty matrix you should pin to your boardroom wall

The third row is the row most founders do not internalise. The recipient director is independently punishable. If the founder is also the MD, the same individual is hit twice — once as officer in default and once as recipient. In a husband-wife director pair where the loan is routed to the spouse, both individuals are independently liable.

The 2026 enforcement shift you cannot ignore

For most of the last decade, Section 185 violations sat in a long queue. The Adjudicating Officer was the Regional Director, and Regional Directorates were stretched. Three structural changes have closed that backlog window:

1. ROC adjudication powers — Notification dated 10 February 2026. The Ministry of Corporate Affairs has formally appointed every Registrar of Companies as an adjudicating officer under Section 454 for a long list of provisions, including Section 185. The ROC no longer has to refer minor and intermediate Section 185 violations upwards. It can issue show cause, hear the company and pass a penalty order — all within ninety days in most cases.
2. Three new Regional Directorates. The number of Regional Directorates has been expanded from seven to ten, with new offices in Ahmedabad, Bengaluru and Chandigarh effective 16 February 2026. For Bangalore-headquartered private companies, what used to be a Chennai-routed file now sits with the new RD Bengaluru, dramatically shortening the response window.
3. MCA-21 V3 search. The V3 portal exposes loan and advance entries from AOC-4 financials in a way the older portal did not. Statutory auditors are using these data trails during peer reviews, and the ICSI’s representation to the MCA dated 6 May 2026 confirms that AOC-4 disclosures are now the single most-queried data set in the portal.

What Section 185 actually prohibits, in plain words

Section 185(1), read together with its proviso and Section 185(2) as substituted by the Companies (Amendment) Act 2017, prohibits a company from doing any of these things, in favour of any director of the company, or of any director of its holding company, or any partner or relative of such director, or any firm in which any such director or relative is a partner:

• Directly or indirectly advancing a loan, including any loan represented by a book debt.
• Giving a guarantee in connection with any loan taken by the recipient from a third party.
• Providing any security in connection with such a third-party loan.

Section 185(2) extends the prohibition to loans to any private company in which any director of the lending company is a director or member, to any body corporate at a general meeting of which not less than 25 percent of the total voting power is exercised by such directors, and to any body corporate whose board, MD or manager is accustomed to act on the directions of the lending company’s board. Section 185(3) carves out exceptions for managing directors, ordinary course of business lending by financial companies, and wholly-owned subsidiary loans. Section 185(4) lays down the penalty regime.

The seven-step compliance test before approving any director loan

Skipping any step is how companies end up in the ROC’s penalty list. Step 3 is where most private companies fail. Step 7 is where most companies file the form but get the disclosure wording wrong.

The three exemption conditions, decoded

Condition A — No body corporate has invested in the share capital

The wording matters. The condition is breached the moment any other body corporate — Indian or foreign, holding, subsidiary or unrelated — subscribes to or acquires even a single share of the company. The most common trigger is a flip-up structure where the founder LLP takes equity in the operating private limited. Once the LLP is on the cap table, the exemption is gone, even if the founder still controls 99 percent through direct holding.

Condition B — Borrowings below 2× paid-up capital or ₹50 crore, whichever is lower

This is the bright-line condition most growing private companies cross unconsciously. A company with ₹50 lakh paid-up capital loses the exemption the moment its aggregate borrowings — including the bank overdraft, the working capital line and any loan from a related body corporate — cross ₹1 crore. The ₹50 crore alternative cap only matters for larger private companies; for a typical Series-A-stage private company with low paid-up capital, the 2× cap binds first.

Condition C — No default on any borrowing

A single missed instalment on the working capital loan — even one cured within the same week — disqualifies the company for the entire financial year in which the default occurred. Defaults in the past, if reported under any RBI mechanism, can also disqualify. Many companies discover this condition only after the auditor flags it during the AOC-4 sign-off.

Section 185 vs Section 186 — the most-confused pair in the Companies Act

If the recipient is a director or an entity in which a director is interested, Section 185 is the test that runs first. Only after a Section 185 carve-out is found — managing director scheme, wholly-owned subsidiary, special resolution under the substituted Section 185(2) — does Section 186 become the operative provision.

Five real fact patterns that have triggered Section 185 orders

1. The founder housing advance. Founder is MD and 99 percent shareholder. The company advances ₹40 lakh to the founder for buying a flat. There is no special resolution and no employment scheme. The auditor flags it. The ROC issues a penalty of ₹5 lakh on the company and ₹5 lakh on the founder personally.
2. The director’s HUF guarantee. Director’s HUF takes a bank loan. The company gives a corporate guarantee. The director is interested in the HUF. Section 185 is triggered. No carve-out applies. Penalty cascade follows.
3. The sister-concern loan. Two private companies have a common director. The first company lends ₹2 crore to the second. Section 185(2) is triggered. The lending company fails Condition B because its borrowings exceed 2× paid-up capital. Penalty orders are issued against both companies.
4. The advance that became a loan. The company gives the MD a ₹6 lakh travel advance. Two years pass without settlement. The auditor reclassifies it as a loan. The ROC accepts the reclassification. Penalty is applied even though no formal loan agreement existed.
5. The promoter LLP layer. Founder routes capital into the operating private limited through a promoter LLP. The LLP is a body corporate. Condition A is breached. Every subsequent loan to the founder from the company becomes a Section 185 contravention.

What the Companies (Amendment) Act 2017 actually changed

Two changes are worth memorising because they are the only legal escape routes outside the private-company exemption:

• Substituted Section 185(2). A company may now advance a loan or give a guarantee or security to any person in whom a director is interested, including a body corporate, provided that a special resolution is passed by the lending company and the loans are utilised by the borrower for its principal business activities. The interest rate must not be less than the prevailing yield of one-, three-, five- or ten-year government securities closest to the tenor of the loan.
• Section 185(3)(c) — wholly-owned subsidiary. The prohibition in Section 185(1) does not apply to a loan made by a holding company to its wholly-owned subsidiary or a guarantee given or security provided in connection with such a loan, regardless of whether the subsidiary’s directors overlap with the holding company.

Both routes still require board approval and MGT-14 filing within 30 days. The 2017 amendment did not relax the punishment under Section 185(4); it only opened the door for genuine business loans through the special-resolution route.

What you must do this quarter

1. Run a Section 185 ledger audit. Ask your finance team to extract every loan, advance and inter-company debit from your books for the last three financial years. Tag each line as covered by Section 185, exempt, or in the grey zone.
2. Test the exemption. Pull your shareholding register and your borrowing schedule. Confirm whether your company satisfied all three conditions of the 5 June 2015 notification on the date of each transaction. The test is transaction-by-transaction, not financial-year-by-financial-year.
3. Settle grey-zone advances. Where an advance has remained outstanding beyond a reasonable settlement period, either reverse it through reimbursement vouchers or convert it into a formal loan that meets the Section 185(2) special-resolution route, including the interest-rate floor.
4. File MGT-14 retrospectively where possible. If a board resolution exists but MGT-14 was missed, file it now with additional fees. Late filing is a lesser offence than non-filing.
5. Update your statutory registers. The Register of Loans (Form MBP-2) and the Register of Contracts (Form MBP-4) must reflect every Section 185 and Section 188 transaction. ROCs are increasingly inspecting these registers during scrutiny.
6. Brief your statutory auditor. A clean Section 185 file going into the audit is the single fastest way to neutralise auditor qualification under CARO 2020.
7. Build a board approval template. The board resolution wording must record the unanimous consent of directors present, the rate of interest, the security, the tenor and the purpose. Generic templates do not survive ROC scrutiny.

The deeper implication for founder-led private companies

According to CS Sapna Malpani, the reason Section 185 produces so many orders is not because companies set out to cheat — it is because the line between “the company’s money” and “the founder’s money” feels artificial when the founder owns 99 percent of the company. The 2013 Act does not accept that intuition. Once the limited liability shield is chosen, the corporate veil cuts both ways: the founder is protected from the company’s creditors, and the company’s money is protected from the founder. The penalty regime is the enforcement mechanism for that bargain.

The forward prediction worth tracking: within the next eighteen months, the new ROC-Bengaluru office is likely to clear a backlog of Section 185 cases against Bangalore-headquartered private companies that filed AOC-4 returns between 2019 and 2023. The disclosures in those returns are now searchable on the V3 portal. Founders who took inter-company loans during the funding boom of 2020–2022 should not assume that the absence of a show-cause notice today implies safety.

How this compares to related provisions every CS should know

Section 185 sits alongside three other Companies Act provisions that founders confuse with it. Section 184 deals with disclosure of interest by a director in any contract — including a director loan — and requires Form MBP-1 at the first board meeting of every financial year, plus immediate disclosure of any change in interest. Section 188 deals with related party transactions and requires board and shareholder approval for transactions beyond prescribed thresholds. Section 189 requires maintenance of a register of contracts in which directors are interested. A director loan typically triggers all four sections simultaneously: Section 184 (disclose interest), Section 185 (prohibition or carve-out), Section 188 (related party approval if outside the ordinary course) and Section 189 (record in the register). A clean compliance file addresses all four together.

Frequently Asked Questions

What is Section 185 of the Companies Act 2013

Section 185 prohibits a company from advancing any loan, providing any guarantee, or offering any security in connection with a loan, to its own directors or to any person in whom such directors are interested. The provision applies to all companies — private, public, and listed — though private companies meeting three specific conditions are exempt under the 5 June 2015 notification. Contravention attracts a fine of ₹5 lakh to ₹25 lakh on the company, plus the same fine plus up to six months imprisonment on every officer in default and on the recipient director.

Is a private limited company exempt from Section 185

Only if it satisfies all three conditions in the MCA exemption notification dated 5 June 2015: no other body corporate has invested in its share capital, its borrowing from banks, financial institutions and bodies corporate is less than twice its paid-up share capital or ₹50 crore (whichever is lower), and it has not defaulted on any borrowing. The moment any one of these conditions fails — including a single missed working-capital instalment — the exemption is lost and Section 185 applies in full.

Can a company give a loan to its managing director

Yes, but only where the loan to the managing director or whole-time director forms part of conditions of service extended to all employees (a uniform housing or vehicle scheme, for example), or where the loan is given pursuant to a scheme approved by the members through a special resolution. Outside these two routes, a loan to the managing director triggers Section 185 and the full penalty regime.

What is the difference between Section 185 and Section 186

Section 185 deals exclusively with loans, guarantees and securities given to directors and entities in which directors are interested — it is a prohibition with limited exceptions. Section 186 deals with loans, guarantees, securities and investments given to any person other than a director — it is a permission subject to limits, board approval and shareholder approval. Section 185 carries criminal consequences including imprisonment; Section 186 contraventions are civil and result in fines only. The Section 185 test runs first; only if cleared does Section 186 apply.

Can a holding company give a loan to its wholly-owned subsidiary

Yes. Section 185(3)(c), inserted by the Companies (Amendment) Act 2017, explicitly permits a company to advance a loan, give a guarantee or provide security to its wholly-owned subsidiary, even where the subsidiary’s directors overlap with the holding company. The transaction must still comply with Section 186 limits and board approval, and the subsidiary must use the funds for its principal business activities.

Does Section 185 apply to advances given to directors for company business

A bona fide advance for company expenditure — travel, hotel, vendor advances — does not amount to a loan under Section 185, provided it is properly accounted, supported by vouchers and reconciled. The risk arises when an advance remains unsettled for an unreasonable period or gets reclassified as a loan by the auditor.

Can Section 185 violations be compounded

Section 185 contraventions are not directly compoundable because the offence carries imprisonment as a possible punishment, and compounding under Section 441 is generally limited to fine-only offences. The practical route is either a Special Court closure on refund of the loan with interest, or post-facto ratification through a special resolution where the underlying transaction itself qualifies for the substituted Section 185(2) route.

What is the latest ROC adjudication position on Section 185

Following notifications dated 10 February 2026, every Registrar of Companies is now an adjudicating officer under Section 454 for a wide list of provisions including Section 185. This shortens the gap between show cause and order — typically to 90 days. Three new Regional Directorates in Bengaluru, Ahmedabad and Chandigarh, effective 16 February 2026, have added capacity to clear the backlog. Companies with historical Section 185 grey areas should expect faster scrutiny.

Sources and references

1. India Code — Companies Act 2013, Section 185 (Bare Act)
2. MCA Notification dated 5 June 2015 — Exemptions to Private Companies
3. MCA — ROC Adjudication Orders portal
4. MCA Notifications dated 10 February 2026 — ROC adjudication powers under Section 454
5. ICSI Representation to MCA dated 6 May 2026 — MCA-21 V3 portal issues
6. Khaitan & Co — Related Entity Lending: Section 185 and 186 Conundrum
7. TaxGuru — Section 185 exemptions and examples
8. Vinod Kothari — Companies (Amendment) Act 2017 — Section 185 and 186 relief

Disclaimer: This article is for general information for Indian private companies, startups and IPO-bound entities. It is not legal advice. Section 185 outcomes depend on transaction-specific facts and the prevailing position of the Registrar of Companies. Consult a Practising Company Secretary or counsel before acting.

By CS Sapna Malpani · Practising Company Secretary, Bangalore · 15 May 2026 · 12 minute read

In April 2025, the ROC Hyderabad slapped an adjudication penalty on a mid-sized private company and its directors for failing to mention the particulars of a ₹4.2 crore loan to a subsidiary in the Board’s Report. The amount that should have been a one-line disclosure became a public order, a permanent dent on the directors’ compliance record, and a quiet warning to every founder running a multi-entity startup: Section 186 of the Companies Act 2013 is no longer a sleeping section. It is the most enforced inter-corporate compliance provision in India today, and a startling number of Indian companies are violating it without realising.

The Problem: Why Section 186 Is Quietly Sinking Indian Startups

Walk into any funded startup in Bangalore, Mumbai or Gurgaon and you will find the same picture. The flagship operating company has multiple subsidiaries: one for technology, one for a marketplace, one for a special licence, one for a foreign acquisition. The parent moves money around like petty cash. ₹50 lakh to fund the subsidiary’s payroll. A corporate guarantee for the subsidiary’s office lease. An investment in a sister company because the auditor said it was needed.

Each of these movements is a Section 186 transaction. Each one needs a board resolution, a calculation of the headroom available under the 60% rule, and a disclosure in the Board’s Report. In ten years of practice, I have seen this section violated more than any other in the Companies Act 2013 — and I have seen the consequences play out painfully when a Series B investor’s due diligence team finds the gap.

The hard truth is this: a single uncorrected Section 186 violation has blocked at least three Bangalore fundraises in the last 18 months that I am personally aware of. Founders had to issue indemnities, redo board resolutions retroactively (often impossible), and in two cases the deal closed at a lower valuation because the investor priced in the regulatory risk.

This guide is the deep-dive every founder, director and CFO should bookmark. It is built from the bare provision in India Code, the latest ROC adjudication orders, and the Cyril Amarchand Mangaldas analysis of the section. By the end of it, you will know exactly what to do before, during and after any inter-corporate transaction.

The Penalty Matrix at a Glance

A single inter-corporate loan above the limit, without a special resolution, with no MGT-14, and missed from the Board’s Report can therefore trigger penalties exceeding ₹10,00,000 across overlapping provisions — plus the very real risk of imprisonment for the officer in default.

What Section 186 Actually Says

Section 186 of the Companies Act 2013 is titled “Loan and investment by company“. It governs four kinds of transactions a company may enter into with any other body corporate or person:

1. Loans granted to any person or body corporate
2. Guarantees given on behalf of any person or body corporate
3. Securities created in connection with a loan to any person or body corporate
4. Investments by way of subscription, purchase or otherwise in the securities of any body corporate

The section sits between Section 185 (loans to directors and connected persons) and Section 187 (investments to be held in company’s own name). All three together form what practitioners call the “capital movement triad” — the legal architecture for how money moves out of a company and into another entity.

The objective of Section 186 is twofold. First, it prevents diversion of company funds into unrelated ventures without shareholder approval. Second, it ensures that the lending company itself does not become a captive financier for promoters and group entities at the cost of minority shareholders and creditors. The 60% / 100% rule is the mathematical expression of this protective philosophy.

The 60% / 100% Calculation Rule, Explained Step by Step

Under Section 186(2), a company cannot, directly or indirectly, do any of the following without a prior special resolution if the aggregate of existing and proposed exposure exceeds the prescribed limit:

• Give any loan to any person or other body corporate
• Give any guarantee or provide security in connection with a loan to any other body corporate or person
• Acquire by way of subscription, purchase or otherwise, the securities of any other body corporate

The prescribed limit is the higher of two amounts:

Worked example. Consider a Bangalore-based private company with:

• Paid-up share capital: ₹10 crore
• Free reserves: ₹6 crore
• Securities premium account: ₹4 crore

Under formula (a): 60% of (10 + 6 + 4) = 60% of ₹20 crore = ₹12 crore

Under formula (b): 100% of (6 + 4) = ₹10 crore

Limit = Higher of the two = ₹12 crore.

Until aggregate exposure reaches ₹12 crore across all loans, guarantees, securities and investments combined, the board can sanction with a unanimous board resolution. The moment a proposed transaction takes the aggregate beyond ₹12 crore, the company needs a prior special resolution in a general meeting plus a Form MGT-14 filing under Section 117.

Two operational nuances that catch companies out:

1. “Free reserves” excludes revaluation reserve and unrealised gains. Refer to the definition in Section 2(43) read with Rule 6 of the Companies (Specification of Definitions Details) Rules, 2014. Many CFOs include the wrong reserves and overstate their headroom.
2. The aggregate is cumulative and continuous. A guarantee given two years ago, still alive on the balance sheet, counts toward today’s limit. Companies that drop expired guarantees from their internal register often miscalculate available room.

The Compliance Flowchart Every Founder Should Pin to Their Wall

The Two-Layer Rule: Section 186(1)

Section 186(1) imposes a separate structural restriction. A company cannot make any investment through more than two layers of investment companies. The objective is to prevent the use of multi-layered holding structures to obscure ultimate ownership and movement of funds — a problem that the Sahara case and several other earlier scandals had brought to light.

What counts as an “investment company”? Rule 2(1)(c) of the Companies (Restriction on Number of Layers) Rules, 2017 defines an investment company as a company whose principal business is acquisition of shares, debentures or other securities. The first investee operating company does not count as a “layer”. The second and subsequent levels of pure-play holding structures do count.

Two important exemptions, introduced by the Companies (Amendment) Act, 2017:

• Foreign acquisition: A company may acquire any other foreign company that has investment subsidiaries beyond two layers, as per the laws of the foreign country
• Compliance requirement: A subsidiary may have any other investment subsidiary for the purposes of meeting the requirements of any law or rule for the time being in force

For Indian startups with ESOP trusts, EMI subsidiaries, IFSC GIFT City entities, or foreign acquisitions, this is a live design question. The structure must be audited by a Practising Company Secretary before incorporation, not after.

The Interest Rate Floor: Section 186(7)

Section 186(7) requires that no loan be given at a rate of interest lower than the prevailing yield of one-year, three-year, five-year or ten-year Government Security closest to the tenor of the loan. This is the provision most often violated by group lending in startup holding structures.

For example, if a holding company gives a three-year loan of ₹2 crore to its sister operating company at 6% per annum, but the current three-year G-Sec yield is 7.1%, the loan violates Section 186(7). The fact that the loan is to a group entity is irrelevant — the floor applies universally except where a specific exemption (such as the wholly-owned subsidiary carve-out for principal business activity) is available.

The current G-Sec yields can be checked on the RBI website or the CCIL daily yield curve. For ongoing loans, the rate at the time of grant of the loan is what matters; subsequent yield changes do not retroactively make the loan compliant or non-compliant.

The Exemptions: Who Is Outside Section 186

Section 186(11) carves out three principal categories of companies and transactions from the limits prescribed in Section 186(2) and (3) — though disclosure and interest-rate requirements continue to apply:

1. Banking companies, insurance companies, housing finance companies, and certain NBFCs in the ordinary course of their business
2. Loans, guarantees and securities given by a holding company to its wholly-owned subsidiary, joint venture, or in respect of a loan made by any other person to its wholly-owned subsidiary — provided the funds are used for the subsidiary’s principal business activity
3. Acquisition by a holding company by way of subscription, purchase or otherwise, of the securities of its wholly-owned subsidiary

The wholly-owned subsidiary exemption is the one most relevant to startups. But it is conditional. The funds must be used for the principal business activity of the subsidiary. If a holding company lends to its WOS and the WOS in turn parks the money in a fixed deposit or lends it onward to a third party, the exemption falls away and Section 186 applies retrospectively from the date of the original loan. Practising Company Secretaries see this issue come up repeatedly in funded startup audits.

Section 185 vs Section 186: Stop Confusing These Two

This is the single most common conceptual error in private company compliance. Section 185 and Section 186 govern different kinds of transactions, but founders treat them as interchangeable. Here is the clean distinction:

Some transactions touch both sections. A loan from a private company to its subsidiary in which the holding company’s director is a director (and that director holds more than 2% in the subsidiary) is a Section 185 transaction in form and a Section 186 transaction in substance. Both compliances must be done. Skipping either gets the company on the wrong side of an enforcement action that is virtually un-fixable retrospectively.

For the Section 185 deep-dive, see our companion guide on Section 185: loans to directors.

What You Must Do Now: A Step-by-Step Compliance Plan

For every existing or proposed inter-corporate transaction, run the following sequence. This is the same sequence I use with founder clients and the same sequence due diligence teams use to flag gaps.

Step 1: Build the Section 186 Register

Open Form MBP-2 (Register of Loans, Guarantees, Securities and Acquisitions made by the company) and populate it with every existing loan, guarantee, security and investment. Include the date, amount, purpose, terms, security, and interest rate. The register must be maintained at the registered office and produced for inspection.

Step 2: Compute the 60% / 100% Limit

Take the latest audited balance sheet. Compute the limit as: Higher of [60% × (Paid-up + Free reserves + Securities premium)] or [100% × (Free reserves + Securities premium)]. Document the calculation in a board note. Update after every quarterly book closure.

Step 3: Compare Aggregate Exposure to Limit

Sum up all live loans, guarantees, securities and investments. If aggregate is within the limit, a unanimous board resolution is sufficient for new transactions. If aggregate exceeds (or the new transaction will cause it to exceed) the limit, a prior special resolution and Form MGT-14 filing are mandatory.

Step 4: Confirm Interest Rate Compliance

For every loan, confirm the interest rate is not lower than the prevailing G-Sec yield for the closest tenor. Document the G-Sec yield reference (date and source) in the board resolution. Build a quarterly rate-reset clause for floating-rate loans if applicable.

Step 5: Pass the Board Resolution Correctly

Section 186(5) requires a unanimous board resolution. This is distinct from an ordinary majority. Every director present at the meeting must consent. A single dissent invalidates the approval. Capture the unanimous consent explicitly in the minutes.

Step 6: File MGT-14 if a Special Resolution Was Passed

Form MGT-14 must be filed within 30 days of passing the special resolution under Section 117. Late filing attracts ₹100 per day penalty. Do not delay this filing — the penalty is mechanical and the ROC will issue an adjudication notice automatically.

Step 7: Disclose in the Board’s Report

Section 134(3)(g) requires every Board’s Report to specify particulars of every loan, guarantee, security and investment made under Section 186. Include date, amount, purpose, recipient, interest rate, and security. This is the single most-cited Section 186 violation in ROC adjudication orders since 2024.

Step 8: Annual Review and Reporting

At every financial year-end, reconcile the Section 186 register with the audited balance sheet. Confirm all live transactions are within the limit. Identify any expired or matured transactions to clean up the aggregate. Prepare a one-page note for the auditor’s compliance certificate.

The Deeper Implication: Why ROCs Are Focusing on Section 186 in 2026

The expansion of ROC adjudication powers under Section 454 in February 2026, combined with the addition of three new Regional Directors at Bengaluru, Ahmedabad and Chandigarh, has meaningfully changed the enforcement landscape. The ROC no longer has to refer matters to NCLT for minor defaults. Adjudication is now an in-house procedure with a 60-day timeline and a published order.

According to CS Sapna Malpani, “Section 186 is the new Section 117. Just as the ROC built a body of MGT-14 adjudication orders between 2022 and 2025, the next 24 months will see a sustained focus on Section 186 disclosures — particularly the Board’s Report omissions under Section 134(3)(g). Companies that have not built a Section 186 register and a quarterly compliance check will find themselves in an adjudication queue.”

The prediction for 2026-27 is straightforward. Expect a wave of adjudication orders against private companies whose Board’s Reports for FY 2024-25 are silent on Section 186 transactions that the balance sheet plainly reflects. The MCA’s data analytics are now mature enough to spot this mismatch automatically.

Key Takeaways

Sources and References

1. Companies Act, 2013, Section 186 — India Code
2. Companies Act, 2013, Section 134(3)(g) and Section 134(8) — India Code
3. Companies (Meetings of Board and its Powers) Rules, 2014 — MCA
4. Companies (Restriction on Number of Layers) Rules, 2017 — MCA
5. Cyril Amarchand Mangaldas: “Key issues under Section 186 for a corporate lawyer” — corporate.cyrilamarchandblogs.com
6. ICSI Guidance Note on Loans and Investments — ICSI
7. MCA ROC Adjudication Orders Database — MCA
8. ICSI Secretarial Standards SS-1 (Board Meetings) — ICSI

Frequently Asked Questions

What is the limit for inter-corporate loans under Section 186 of the Companies Act 2013?

Under Section 186(2), a company cannot give a loan, guarantee, security or make an investment exceeding 60% of (paid-up share capital + free reserves + securities premium account) OR 100% of (free reserves + securities premium account), whichever is higher. Beyond this limit, a prior special resolution in a general meeting is mandatory. The aggregate is calculated across all existing loans, guarantees and investments — not transaction by transaction. The single biggest miscalculation founders make is failing to add up old, still-live guarantees when computing their current headroom.

What is the difference between Section 185 and Section 186 of the Companies Act?

Section 185 governs loans, guarantees and securities provided by a company to its directors, KMPs and any entity in which they are interested. Section 186 governs loans, guarantees, securities and investments by a company to or in any other body corporate. Section 185 has near-absolute prohibitions with limited exceptions and qualitative tests; Section 186 has quantitative limits (the 60% / 100% test) and procedural safeguards. The same transaction may attract both sections — for example, a loan to a subsidiary in which a director holds more than 2% requires compliance with both. Many startup founders skip one of the two checks and pay the price during due diligence.

What is the penalty for violating Section 186?

Under Section 186(13), the company is liable to a fine of not less than ₹25,000 extending up to ₹5,00,000. Every officer in default faces imprisonment up to 2 years and a fine ranging from ₹25,000 to ₹1,00,000. Separately, non-disclosure of Section 186 transactions in the Board’s Report under Section 134(3)(g) attracts a civil penalty of ₹3,00,000 on the company and ₹50,000 on each officer in default under Section 134(8). Both penalties can be levied for the same lapse — the disclosure failure does not subsume the substantive violation, and the substantive violation does not subsume the disclosure failure.

Is a special resolution required for every inter-corporate loan under Section 186?

No. A unanimous board resolution is sufficient when the aggregate of loans, investments, guarantees and securities is within the prescribed limit (60% / 100% test). A special resolution is required only when the aggregate exceeds the limit. The special resolution must be filed with the ROC in Form MGT-14 within 30 days under Section 117. Companies often forget the MGT-14 filing and incur a separate ₹25,000 + ₹100 per day penalty. The MGT-14 filing is a frequent source of adjudication orders, particularly because the form auto-fails when the resolution text does not match the prescribed format.

Does Section 186 apply to loans given by a holding company to its wholly-owned subsidiary?

Section 186(11) carves out specific exemptions. Loans, guarantees and securities provided by a holding company to its wholly-owned subsidiary, or by a holding company in respect of any loan made to its wholly-owned subsidiary, are exempt from the quantitative limits in Section 186(2) and (3) — provided the loan is used by the subsidiary for its principal business activity. However, the disclosure requirements under Section 186(4) and the interest rate floor under Section 186(7) continue to apply. If the WOS uses the loan for any purpose other than its principal business, the exemption is lost and the quantitative limit applies retrospectively.

What interest rate must a company charge on inter-corporate loans?

Under Section 186(7), no loan shall be given at a rate of interest lower than the prevailing yield of one-year, three-year, five-year or ten-year Government Security closest to the tenor of the loan. Interest-free loans are not permitted unless covered by a specific exemption such as the wholly-owned subsidiary carve-out for principal business activity. Charging a below-market rate or zero interest is a common Section 186 violation flagged in secretarial audits, particularly for inter-group lending in startup holding structures. The applicable G-Sec yield is the rate at the time of grant of the loan; subsequent yield changes do not retroactively make the loan compliant or non-compliant.

How many layers of investment companies are permitted under Section 186(1)?

A company cannot make investments through more than two layers of investment companies under Section 186(1). Exemptions apply for acquisitions of foreign companies with more than two layers as per the host country’s laws, and for subsidiaries that have any other investment subsidiary for compliance with applicable law. The 2017 amendment introduced these carve-outs, but the basic two-layer cap continues to be enforced by ROCs in adjudication orders. For Indian startups with ESOP trusts, EMI subsidiaries, IFSC GIFT City entities, or foreign acquisitions, the holding structure must be audited by a Practising Company Secretary before incorporation.

Where is Section 186 compliance disclosed in the Board’s Report?

Section 134(3)(g) requires every Board’s Report to include particulars of loans, guarantees, and investments under Section 186. The disclosure must specify the date of the loan or investment, the amount, the purpose, and the rate of interest. ROC adjudication orders in 2024-25 have repeatedly penalised companies for omitting these particulars in the Board’s Report, with separate civil penalties under Section 134(8) of ₹3,00,000 on the company and ₹50,000 per officer in default. A one-line generic disclosure is insufficient — each transaction must be tabulated.

Last updated: 15 May 2026 by CS Sapna Malpani. This article is general information, not legal advice. Section 186 has overlapping interactions with Section 185, Section 188, FEMA, and the LODR Regulations for listed companies. Consult a Practising Company Secretary before structuring any inter-corporate transaction.

On 20 January 2026, SEBI did something that bond-market lawyers had been petitioning for since the original 2023 framework rolled out. Through Notification SEBI/NRO-GN/2026/295 — the SEBI (LODR) (Amendment) Regulations, 2026 — it lifted the High Value Debt Listed Entity (HVDLE) classification threshold from Rs 1,000 crore to Rs 5,000 crore of outstanding listed non-convertible debt. By SEBI’s own consultation paper estimates, that single change cuts the HVDLE universe by approximately 64%. Around 53% of the entities exiting are NBFCs, HFCs, ARCs and insurance companies — already regulated by the RBI or IRDAI — for whom a parallel LODR governance overlay had been the textbook definition of regulatory duplication.

If you run finance at a private NBFC with Rs 1,500 crore of outstanding NCDs, or sit on the board of a pre-IPO REIT-adjacent platform that crossed Rs 1,000 crore last year, this single amendment changes your compliance scope, your committee-charter language, your secretarial calendar and the cost-base of your next bond issuance. This guide walks through every operative change, the substituted Regulation 62K, the 30-day investor service rule, the new 3-month committee vacancy clock, and a clean off-ramp playbook for entities exiting the HVDLE net — plus a stay-and-comply playbook for those above the new line.

The Problem — Why This Matters Right Now

From 2024 to early 2026, the HVDLE chapter (Chapter VA of the LODR Regulations) operated as an awkward halfway house. Entities with Rs 1,000 crore or more of listed NCDs — whose equity was often unlisted, often privately held by sponsors, sometimes part of a global parent’s India platform — were required to constitute an Audit Committee, a Nomination and Remuneration Committee, a Stakeholders Relationship Committee, and (depending on size) a Risk Management Committee. They had to procure independent directors, run quarterly audit committee meetings, publish related party transactions disclosures, and file an annual Secretarial Compliance Report — much of which mirrored equity-listed obligations without the corresponding equity-market dynamics of public float, takeover code, insider trading regime or stock-exchange surveillance.

For an NBFC with say Rs 1,400 crore of NCDs outstanding, sponsored by a Singapore-headquartered private equity firm, the LODR Chapter VA overlay produced roughly Rs 35–50 lakh per year of incremental compliance cost (independent director sitting fees, secretarial audit, RPT policy refresh, audit committee meetings travel and KMP coordination), on top of RBI’s NBFC governance norms — Master Direction on NBFCs (Scale Based Regulation), Fair Practices Code, Internal Audit, IT Governance Master Direction, all of which already produced an audit committee, board-level RPT review, and an annual statutory audit.

SEBI’s January 2026 amendment is an attempt to remove that duplication for mid-sized issuers without diluting governance for the largest ones. The 64% reduction in HVDLE count is significant. It is also a real cost-of-capital story: NCD spreads for issuers in the Rs 1,000–5,000 crore band typically compressed 3–8 bps in the 90 days following the notification as the implicit “LODR compliance friction” priced into mid-tier paper began to unwind.

By the Numbers

Diagram 1 — Threshold Comparison: Before vs After

What Changed — A Line-By-Line Walk-Through

1. Substituted Regulation 15(1A) — The Headline Move

The earlier Regulation 15(1A) defined a HVDLE by reference to outstanding listed non-convertible debt securities of Rs 1,000 crore or more, on the basis of the latest audited financial statements. The substituted Regulation 15(1A) replaces the figure with Rs 5,000 crore and clarifies that the assessment is made on a roll-forward basis, with the entity required to intimate change of classification within the timelines prescribed under Regulation 30. SEBI’s consultation paper (Page 1 of 70, January 2026 board meeting paper) noted that the original Rs 1,000 crore figure had been set in 2021 when the market for corporate bonds was at a different scale and that current outstanding listed debt issuance has grown substantially, requiring recalibration.

2. Substituted Regulation 62K — The Hidden Hammer

This is the change most LODR commentary buries. Regulation 62K was rewritten to require HVDLEs to comply with Regulation 23 of the LODR Regulations — the equity-listed RPT framework — except sub-regulations (8) and (9). The carve-outs are deliberate: sub-regulation (8) deals with public-shareholder voting thresholds, and sub-regulation (9) with periodic disclosure on the exchange website which is structured for equity-listed shareholders. Everything else is in: Audit Committee approval is mandatory, prior shareholder approval for material RPTs kicks in (with adapted thresholds for the debt context — typically 10% of consolidated turnover or such other threshold as the Board may prescribe), half-yearly disclosure in the format prescribed for equity-listed entities, and arms-length, ordinary-course tests apply.

For HVDLEs remaining above the Rs 5,000 crore line, this is the single biggest practical change. RPT policies that were written for the older Regulation 62K need to be redrafted by 30 June 2026 (so the FY 2026-27 first-half RPT disclosure falls within the new framework). Audit committee charters need updating. Promoter-related party contracts that historically sailed through under the older lighter-touch test need to be re-papered.

3. Omission of HVDLE Annual Secretarial Compliance Report

The annual Secretarial Compliance Report that HVDLEs were required to file with stock exchanges has been omitted. Note carefully: this is the HVDLE-specific report, not the Secretarial Audit Report under Section 204 of the Companies Act, 2013. Entities that have an equity-listed parent and continue under Regulation 24A will still file the equity-side compliance report. For pure-play HVDLEs without equity listing, this is a real saving — typically Rs 1.5–3 lakh in secretarial professional fees per annum, plus the management time of the compliance cycle.

4. The 30-Day Investor Service Window — Demat Only

SEBI’s amendment includes a structural push on dematerialisation. Following an investor service request — subdivision, split, consolidation, exchange, issuance of duplicate securities — the credit of securities must be effected only in dematerialised form, and must be completed within thirty days from the receipt of the request along with all requisite documents. Physical share certificates are increasingly being squeezed out. Issuers that still process physical service requests need to update their Investor Service Standard Operating Procedure (SOP) immediately and notify their Registrar and Transfer Agent (RTA) of the new window.

5. The 3-Month Committee Vacancy Clock

Vacancies in the Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee or Risk Management Committee arising from a Board of Directors vacancy must be filled within 3 months from the date the vacancy arose. The earlier “reasonable period” language was a frequent enforcement risk — boards waited 5, 6, 8 months. The 3-month hard cap aligns HVDLE practice with equity-listed entities and creates a clean audit trail for stock-exchange review.

Diagram 2 — Substituted Regulation 62K: Before vs After RPT Framework

Who Wins, Who Stays — The Universe Map

The 64% reduction in HVDLE count is concentrated in three buckets. First, mid-sized NBFCs and HFCs that had crossed the Rs 1,000 crore listed-debt mark but sat well below Rs 5,000 crore. Many of these had been chafing under the RPT and committee burden — particularly Section 178 NRC obligations — when their RBI Scale Based Regulation governance already prescribed similar safeguards. Second, mid-tier insurance companies and ARCs in similar shape, regulated by IRDAI and RBI respectively. Third, a smaller set of private companies that had raised listed NCDs to fund infrastructure projects or platform plays — for example, Singapore or Mauritius-headquartered private equity platforms with India-side issuance vehicles.

Above the new line, the universe is roughly 70 entities — the largest NBFCs, the systemically important HFCs, the AAA-rated public sector financiers, a handful of conglomerate finance arms, REIT and InvIT debt issuers above scale, and selected infrastructure SPVs. These remain in the HVDLE chapter and inherit the Regulation 62K → Regulation 23 alignment as a structural step-up in RPT governance.

Pre-IPO entities, take note

For IPO-bound companies that have a parallel listed-debt issuance — a pattern common among NBFC issuers preparing for an equity listing alongside their existing bond book — the dynamics flip. If your debt book is above Rs 5,000 crore, you continue as HVDLE today and convert to a fully equity-listed regime at IPO. If below Rs 5,000 crore, your LODR exposure is now confined to the equity transition only — meaning your DRHP-to-listing compliance project is materially simpler, the secretarial audit scope narrower, and the pre-listing governance gap analysis tighter.

Step-by-Step — What You Must Do Now

The Deeper Implication

According to CS Sapna Malpani, the SEBI LODR Amendment 2026 should be read as the third leg of a three-part 2024–2026 SEBI bond-market policy. First, the dematerialisation push that culminated in the January 2026 amendment to Regulation 8 and the 30-day investor service rule. Second, the recalibration of the HVDLE threshold to focus governance bandwidth on the largest issuers. Third, the alignment of RPT governance between HVDLE and equity-listed entities via the substituted Regulation 62K — which signals that for the very largest debt issuers, SEBI sees no meaningful regulatory daylight between an equity-listed and a debt-listed governance regime.

Looking forward, the most plausible next step is SEBI moving to a similar “size-based” calibration on the disclosure side — separating periodic disclosures by issuance size rather than instrument type. Issuers above Rs 5,000 crore should expect tighter alignment with equity-listed disclosure obligations over the next 12–18 months; mid-sized issuers that exit today should not assume the lighter regime is permanent if their debt book scales toward the threshold over time.

Comparison With Adjacent Rules — Don’t Confuse These Three

Sources and References (Gold and Silver Tier)

• SEBI Regulations — Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2026, dated 20 January 2026 (Gold)
• SEBI Board Meeting Paper — “Relaxation in the threshold for identification of HVDLE”, January 2026 (Gold)
• Taxmann — SEBI Raises HVDLE Threshold to Rs 5,000 Cr (Silver)
• MMJC — SEBI Notifies LODR (Amendment) Regulations, 2026 — Restructuring the HVDLE Framework and Investor Services (Silver)
• TaxGuru — SEBI (LODR) (Amendment) Regulations, 2026 Detailed Walk-through (Silver)
• Mondaq — SEBI Issues LODR (Amendment) Regulations, 2026 (Silver)
• India Code — SEBI Act, 1992 Sections 15HB and 23E (Gold)

Related Reading on Sapnamalpani.com

• Pre-IPO Compliance Checklist India 2026 — 12-Month Countdown
• SEBI Pledged Shares Lock-in Mechanism 2026 — Pre-IPO AoA Amendment
• SEBI IPO Observation Letter — 30 September 2026 Extension
• Related Party Transactions — Section 188 Companies Act Guide
• Secretarial Audit — Section 204 Compliance Complete Guide

Frequently Asked Questions

What is the new HVDLE threshold under SEBI LODR Amendment 2026?

The outstanding listed non-convertible debt threshold for HVDLE classification has been raised from Rs 1,000 crore to Rs 5,000 crore under substituted Regulation 15(1A), with effect from 20 January 2026 (Gazette publication date). SEBI’s own consultation paper estimates this cuts the HVDLE universe by approximately 64%. Mid-sized issuers — particularly NBFCs, HFCs, ARCs and insurance companies with NCD outstandings in the Rs 1,000–4,999 crore range — exit the HVDLE chapter while continuing under their primary sectoral regulators (RBI / IRDAI).

When did the SEBI LODR HVDLE Amendment 2026 come into effect?

The SEBI (LODR) (Amendment) Regulations, 2026 were notified vide SEBI/NRO-GN/2026/295 and came into force on the date of publication in the Official Gazette — namely 20 January 2026. There is no separate transition period; the new Rs 5,000 crore threshold applies with immediate effect. Entities that crossed the threshold on or before 20 January 2026 and are now below it should make the reclassification call at the next Board / Audit Committee meeting and intimate the stock exchanges under Regulation 30.

What does the substituted Regulation 62K require HVDLEs to do?

Substituted Regulation 62K requires HVDLEs to comply with Regulation 23 of the LODR Regulations (except sub-regulations (8) and (9)) for related party transactions. This means HVDLEs above Rs 5,000 crore now follow the full equity-listed RPT framework — Audit Committee approval, prior shareholder approval for material RPTs (with adapted thresholds for the debt context), half-yearly RPT disclosure to stock exchanges, and the arms-length / ordinary-course test. The carve-out for sub-regulations (8) and (9) excludes public-shareholder voting and equity-side exchange disclosure — both inapt for a debt-only listing.

Is the annual Secretarial Compliance Report still required for HVDLEs?

No. The HVDLE-specific annual Secretarial Compliance Report to stock exchanges has been omitted. The standalone Secretarial Audit Report under Section 204 of the Companies Act, 2013 (for prescribed companies) continues unchanged, and for entities that also have equity listing, the equity-side Regulation 24A Annual Secretarial Compliance Report continues. The omission applies specifically to the HVDLE-overlay version.

What is the 30-day investor service rule under the 2026 Amendment?

Following an investor service request — subdivision, split, consolidation, exchange or issuance of duplicate securities — the credit of securities must be effected only in dematerialised form and completed within 30 days from receipt of the request along with all requisite documents. Issuers and their Registrar and Transfer Agents (RTAs) must update their Investor Service SOP to cover this hard window; failure invites SEBI action and reputational risk in the bond market.

How long does an HVDLE have to fill a Board Committee vacancy?

Any vacancy in Board Committees — Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee, or Risk Management Committee — arising out of a Board of Directors vacancy must be filled within 3 months from the date of vacancy. The earlier “reasonable period” standard has been replaced by this hard cap, aligning HVDLE practice with equity-listed entities.

Which entities make up the HVDLE universe?

Per SEBI’s consultation paper, approximately 53% of HVDLEs are Non-Banking Financial Companies (NBFCs), Housing Finance Companies (HFCs), Asset Reconstruction Companies (ARCs), insurance companies and banks — all already regulated by RBI / IRDAI / RBI. The remaining 47% are mixed: a few corporate-bond issuers from operating companies, infrastructure SPVs, REIT-adjacent debt issuance vehicles, and selected privately-held large-scale platforms. Post-amendment, roughly 70 entities remain inside the HVDLE chapter.

What is the penalty for non-compliance with HVDLE LODR obligations?

SEBI may impose a monetary penalty of up to Rs 1 crore under Section 15HB read with Section 23E of the SEBI Act, 1992 for failure to comply with LODR Regulations. For continuing defaults, SEBI may also order disgorgement, restraints on issuance of further securities, and direct stock exchanges to levy daily compliance fines under the LODR Standard Operating Procedure (SOP) Circular. For directors and officers in default, action under Section 24 of the SEBI Act may follow.

© 2026 CS Sapna Malpani. This article is for general information only and does not constitute legal or compliance advice. For a confidential review of your company’s HVDLE classification, contact CS Sapna Malpani.

SEBI Extends IPO Observation Letter Validity to 30 September 2026: ₹43,500 Crore Lifeline for 40 IPO-Bound Companies

By CS Sapna Malpani, Practising Company Secretary, Bangalore | Last Updated: 27 April 2026 | Reading Time: 14 minutes

On 7 April 2026, SEBI quietly handed roughly 40 IPO-bound companies a six-month reprieve worth ₹43,500 crore in collective fundraising. The circular extends the validity of every observation letter expiring between 1 April and 30 September 2026 to a single uniform date: 30 September 2026. For any issuer whose DRHP cleared SEBI in the second half of 2025, this is the difference between a 2026 listing and starting from scratch in 2027 with a fresh ₹3 to ₹5 crore in advisory fees. This guide walks IPO-bound CFOs, founders and CS practitioners through exactly what changed, who qualifies, what must be refiled, and how to use the window without tripping over the fine print on Minimum Public Shareholding (MPS).

The Problem: Why a Lapsed Observation Letter Costs ₹3 to ₹5 Crore to Fix

An IPO observation letter is SEBI’s clearance under Regulation 25 of the SEBI ICDR Regulations 2018, allowing an issuer to proceed with the public offer based on the Draft Red Herring Prospectus filed earlier. The standard validity is 12 months from the date of issue. Once it lapses, Regulation 25(2) is unforgiving: the issuer must file a fresh DRHP, re-pay SEBI filing fees, refresh audited financials, redo legal due diligence and restart the 60 to 90 day SEBI review cycle.

For a typical mid-cap Main Board IPO raising ₹500 to ₹2,000 crore, the all-in cost of a lapse runs:

• Fresh BRLM mandate fees: ₹1.5 to ₹2.5 crore
• Updated legal due diligence: ₹40 to ₹80 lakh
• Refreshed audit and Restated Financial Information: ₹25 to ₹50 lakh
• SEBI re-filing fees: 0.05% of issue size, up to ₹5 crore
• Roadshow re-run, printing, advertising: ₹50 lakh to ₹1 crore
• Lost market window opportunity cost: not quantifiable, often the biggest hit

Add 6 to 12 months of delay, and a lapsed observation letter routinely turns into a ₹4 crore mistake. According to data from Prime Database cited in the 7 April circular, observation letters covering ₹43,500 crore of collective fundraising were due to expire in the same six-month window. Without the SEBI relief, India would have seen the largest single IPO logjam since the 2020 covid pause.

Penalty Comparison: Letting It Lapse vs Using the Extension

The math is brutal. Every CFO sitting on a 2025-issued observation letter that expires in mid-2026 should have the addendum strategy on a partner-level board call before the next monthly review.

What Exactly Changed on 7 April 2026

SEBI’s circular invokes Regulation 300 of SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018, which lets the regulator relax the strict application of timelines on a case-by-case or one-time basis. The key operative paragraphs:

1. Validity extension: Observation letters issued under Regulation 25 of ICDR that were due to expire between 1 April 2026 and 30 September 2026 stand extended to 30 September 2026.
2. Conditionality: The extension is conditional on the issuer filing an updated offer document and an undertaking from the Book Running Lead Manager confirming continued ICDR compliance.
3. MPS forbearance: Stock exchanges and depositories are directed not to initiate penal action against listed companies whose MPS compliance deadlines fall in the same 1 April to 30 September 2026 window.
4. Reason recorded: SEBI cites geopolitical tensions in West Asia and subdued market sentiment as the trigger.
5. One-time relief: The circular explicitly states this is a one-time measure and not a structural change to ICDR Regulation 25.

According to Business Standard’s reporting on the same day, the relief covers four categories of issuer at risk: those whose DRHPs were cleared in Q3 or Q4 of FY 2025-26, mid-cap technology and consumer companies that paused road shows after the West Asia escalation in March, listed companies with promoter dilution deadlines, and SME-to-Main Board migrations that needed a fresh DRHP refresh.

The Refresh Timeline: 7 Phases Between Now and 30 September 2026

By the Numbers: The Scale of the Lifeline

Decision Flow: Should You Use the Extension or Just Launch Now?

What You Must Do Now: A 7-Step Refresh Action Plan

Step 1: Confirm Eligibility

Pull the original SEBI processing memo (received via the SEBI Intermediary Portal). Add 12 months to the observation letter date. If the result falls between 1 April 2026 and 30 September 2026, you qualify. If the original letter already expired before 1 April 2026, you do not qualify and must refile a fresh DRHP under standard Regulation 25 timelines.

Step 2: Run a Material Change Audit

The biggest trap with refresh filings is undisclosed material change. The CS team must run a structured material-change audit covering eight buckets: financial performance variance from DRHP projections, new litigation or regulatory orders, related party transactions exceeding Section 188 thresholds, board and KMP changes, ESOP grants and dilution, business mix or geographic shifts, foreign investment events under FEMA, and changes to promoter shareholding or pledge structure. Any material event missed here exposes the directors to Section 26 ICDR misstatement liability.

Step 3: Refresh Restated Financial Information

Audited financials in the DRHP must be no older than six months as of the addendum filing date. For most issuers refreshing in May or June 2026, this means using FY 2025-26 audited numbers as the latest stub period. The auditor must issue either a fresh consent or an addendum opinion confirming Regulation 33 compliance.

Step 4: Obtain BRLM Compliance Undertaking

The Book Running Lead Manager must issue a written undertaking, on its letterhead, that the issuer continues to comply with all SEBI ICDR disclosure requirements as of the refresh date. Most BRLMs charge a refresh fee of ₹15 to ₹40 lakh for this exercise, materially less than the ₹1.5 to ₹2.5 crore re-mandate cost.

Step 5: Pass a Board Re-validation Resolution

Convene a board meeting under Section 173 read with Secretarial Standard SS-1. Pass a resolution authorising the addendum filing and re-confirming the IPO size, structure and OFS component. File MGT-14 with ROC within 30 days under Section 117(3)(g) read with Section 179(3)(d). Failure to file MGT-14 attracts up to ₹10.49 lakh in adjudication penalty as the recent KCP Infra case shows.

Step 6: File the SEBI Addendum

Upload the updated offer document, BRLM undertaking, material change disclosure and board resolution through the SEBI Intermediary Portal. Use the existing observation letter reference number; do not create a fresh DRHP record. SEBI typically clears refresh filings within 21 to 30 working days. The fee is at the SEBI’s discretion under Regulation 300, and most refresh filings have been waived in past cycles.

Step 7: Plan the Launch Window

Allow at least 30 working days between SEBI clearance and intended issue opening. This buffer accommodates roadshows, anchor allocation and exchange in-principle approvals. Working backwards from 30 September 2026, the practical launch must close by mid-September. That gives a launch window of approximately 90 days between mid-June and mid-September 2026.

The Deeper Implication: SEBI Is Signalling, Not Just Relieving

According to CS Sapna Malpani, the more interesting story is the regulatory signal beneath the relief. SEBI does not extend observation letter validity casually. The last time it did so was during the covid market freeze in mid-2020. By citing geopolitical risk as the reason in 2026, SEBI is doing two things at once: providing genuine relief to issuers, and signalling to the market that it expects the IPO pipeline to restart in earnest only in the September quarter. The implication for IPO-bound CFOs is that the September window will be crowded. Companies that file early, complete refresh by mid-July and slot a clean July-August launch will outpace the September rush.

The second implication is that the MPS forbearance is structurally significant. Stock exchanges have historically frozen promoter holdings of issuers that miss MPS deadlines. The 7 April circular’s direction not to initiate penal action removes a Damocles sword over roughly 12 listed companies that were tracking close to the 25% public shareholding threshold. Expect ICSI and SEBI to issue follow-up FAQs in May 2026 clarifying which MPS deadlines specifically qualify for the relief.

How This Compares to Earlier SEBI Relief Cycles

Two earlier SEBI extensions are worth comparing. In April 2020, SEBI extended observation letter validity from 12 to 18 months as part of the covid relief package; that was a structural change to Regulation 25 itself, not a one-time relief. In November 2021, SEBI granted a 90-day case-by-case relaxation to specific issuers without a blanket circular. The April 2026 relief sits between these two: it is a blanket circular like 2020, but operates as a one-time extension under Regulation 300 rather than a structural amendment.

The practical takeaway: do not treat the 30 September 2026 date as the new normal. SEBI has historically reverted to the 12-month standard once macro conditions stabilise. Issuers planning fresh DRHPs in 2027 should still build their internal calendars around the 12-month observation letter assumption.

Common Mistakes to Avoid

From CS practice, four mistakes show up repeatedly when issuers refresh observation letters:

1. Treating the extension as automatic: It is not. Without an addendum filing and BRLM undertaking, the letter still effectively lapses because the issuer cannot launch without SEBI’s refreshed clearance.
2. Underestimating material change disclosure: Issuers often disclose only financial changes and forget litigation, board changes, and FEMA events. Section 26 ICDR misstatement liability survives the addendum filing.
3. Missing the MGT-14 trigger on the re-validation board resolution: This is a Section 117 ROC filing requirement separate from the SEBI addendum. Default attracts a 30-day delay penalty under Section 117(2).
4. Booking the launch too close to 30 September 2026: SEBI’s 21-30 day refresh review plus 30-day launch buffer means filings after mid-June are at risk of slipping past the cutoff.

Sources and References

• SEBI Circulars repository (Gold)
• India Code: Companies Act 2013, Sections 117, 173, 188 (Gold)
• Business Standard, 7 April 2026 (Bronze)
• Business Today, 7 April 2026 (Bronze)
• Studycafe analysis (Silver)
• SEBI ICDR Regulations 2018, Regulation 25 and Regulation 300
• ICSI Guidance Note on Public Issues, 2024 edition

Frequently Asked Questions

What did SEBI’s 7 April 2026 circular do for IPO-bound companies?

SEBI extended the validity of IPO observation letters expiring between 1 April 2026 and 30 September 2026 to a single uniform date: 30 September 2026. The circular also relaxed Minimum Public Shareholding norms for the same period and applies to roughly 40 issuers planning to raise about ₹43,500 crore. The relief was issued under Regulation 300 of the SEBI ICDR Regulations 2018 as a one-time measure citing geopolitical tensions in West Asia and weak market sentiment.

Which companies qualify for the SEBI IPO observation letter extension?

Any issuer whose SEBI ICDR observation letter is set to expire between 1 April 2026 and 30 September 2026 qualifies. The relief covers Main Board IPOs, follow-on offers and OFS-only filings. Issuers must submit updated offer documents and a compliance undertaking from their lead managers to use the extension. Letters that already expired before 1 April 2026 are not covered and the issuer must refile a fresh DRHP under standard Regulation 25 timelines.

What happens if an IPO observation letter lapses without an extension?

A lapsed observation letter forces a fresh DRHP filing under Regulation 25(2) of SEBI ICDR Regulations 2018. That means re-paying SEBI filing fees (up to ₹5 crore at 0.05% of issue size), refreshing audited financials, redoing legal due diligence and restarting a 60 to 90 day SEBI review cycle. For mid-sized IPOs, the all-in cost can exceed ₹4 crore in advisory and merchant banker fees, plus 6 to 12 months of clock-time delay.

Does the extension apply to MPS compliance for already-listed issuers?

Yes. The same circular directs stock exchanges and depositories not to initiate penal action including fines or freezing of promoter holdings against listed companies whose Minimum Public Shareholding compliance deadlines fall between 1 April 2026 and 30 September 2026. This is a parallel relief and does not require a separate application; it operates automatically through the exchange’s enforcement framework.

What documents must a company refile to use the extension?

An issuer must file an updated offer document reflecting the latest available financials, an undertaking from the Book Running Lead Manager confirming continued ICDR disclosure compliance, and a board resolution authorising re-validation. Material changes in financials, litigation, related party transactions or corporate structure must be disclosed even if no new approval is required. Additionally, the issuer must file MGT-14 with the ROC within 30 days of the re-validation board resolution under Section 117(3)(g).

Is the SEBI extension automatic or do issuers have to apply?

It is conditional. The validity extends automatically to 30 September 2026, but the issuer cannot launch the IPO without first filing updated offer documents with SEBI and obtaining the lead manager’s compliance undertaking. In practice, treat it as a 60-day refresh exercise rather than a free pass. Most issuers will end up paying ₹40 to ₹65 lakh in refresh costs versus ₹3 to ₹5 crore for a full fresh DRHP.

Why did SEBI grant this one-time relief?

The circular explicitly cites geopolitical uncertainty in West Asia and weak retail and institutional sentiment as the reason. Around 40 companies with collective fundraising plans of ₹43,500 crore were at risk of seeing observation letters lapse during the same window, which would have meant the largest IPO logjam since the 2020 covid pause. SEBI chose blanket relief over case-by-case applications to avoid an administrative bottleneck.

Can SME IPOs use the same relief?

Yes, SME IPOs cleared by exchange-level processes that mirror SEBI ICDR observation letters fall within the spirit of the circular. NSE Emerge and BSE SME platform issuers should consult their merchant bankers for exchange-specific guidance, but the principle of refresh-and-relaunch applies.

This article is for informational purposes only and does not constitute legal or investment advice. CS Sapna Malpani is a Practising Company Secretary based in Bangalore and a Partner at Vivek Hegde & Co, Company Secretaries. For specific advice on your IPO observation letter refresh, please schedule a consultation.

CCFS 2026: Save 90% on MCA Penalties – The Complete Guide to the ROC Filing Amnesty Window (15 April – 15 July 2026)

Last updated: 22 April 2026 | By CS Sapna Malpani, Practising Company Secretary, Bangalore

A Bangalore-based private limited company with two years of missed annual filings walked into our office last week. The standard additional fee quote from the MCA V3 portal: ₹1,33,600. After applying the Companies Compliance Facilitation Scheme, 2026 (CCFS 2026), the final bill came to ₹13,360 – a straight saving of ₹1,20,240 on a single filing session. That is what this scheme is doing for thousands of defaulting companies across India right now. The window closes on 15 July 2026, and no extension has been notified.

Why CCFS 2026 Is a Once-in-a-Cycle Opportunity

Amnesty schemes from the Ministry of Corporate Affairs are rare. The last comparable window was the Companies Fresh Start Scheme (CFSS) in 2020, triggered by the pandemic. Before that, the Condonation of Delay Scheme (CODS) in 2018. The gap between meaningful amnesties has stretched to 5-6 years on average. The next one is not scheduled, and based on MCA’s recent enforcement tone, it will not come soon.

Over the last 18 months, Registrars of Companies have issued adjudication orders at a pace not seen before. Our firm tracks MCA orders weekly. In FY 2025-26 alone, over 4,800 adjudication orders crossed our desk – many for simple filing defaults that the company secretary could have flagged if someone was watching. Typical penalty slabs for a single year’s default on MGT-7 or AOC-4 now range from ₹1 lakh to ₹11 lakh per company, plus ₹50,000 on each director. CCFS 2026 wipes out most of that exposure for companies that act in time.

The scheme also protects against the silent killer: Section 164(2) director disqualification. Three consecutive years of non-filing of MGT-7 or AOC-4 triggers automatic director disqualification for five years across all companies. Many founders discover this only when their next fundraise or board appointment fails a compliance check. Clearing the backlog under CCFS 2026 stops the Section 164(2) clock before it strikes.

VISUAL: Fee Waiver Matrix – What CCFS 2026 Actually Gives You

Source: MCA General Circular No. 01/2026 dated 24 February 2026 read with the Companies (Registration Offices and Fees) Rules, 2014.

Who Can Use CCFS 2026 – and Who Is Shut Out

Eligible

• Private limited companies with overdue MGT-7 / MGT-7A or AOC-4 filings for any financial year
• Public unlisted companies with pending annual return or financial statement filings
• Section 8 companies behind on ROC filings
• Foreign companies that have missed FC-3 / FC-4 filings
• Any company with legacy 1956 Act forms (20B, 21A, 23AC, 23ACA, 66, 23B) still pending
• Active companies that want to voluntarily move to dormant status via MSC-1
• Defunct companies that want to exit via STK-2 at a reduced fee

Ineligible (Hard Block)

• Companies already facing strike-off action under Section 248 where the final notice has been issued by the ROC
• Companies that have themselves filed an STK-2 strike-off application before 15 April 2026
• Companies already holding dormant status (application filed before scheme inception)
• Companies dissolved via amalgamation or demerger
• Companies classified as “vanishing companies” by MCA

VISUAL: The Real Cost of Missing the Window

Source: Companies Act, 2013, read with the Companies (Adjudication of Penalties) Rules, 2014.

A Worked Example: ₹1.2 Lakh Saved in One Afternoon

Consider a typical Bangalore private limited company with paid-up capital of ₹25 lakh. The company missed filings for FY 2023-24 (due by October 2024) and FY 2024-25 (due by October 2025). Today is 22 April 2026, which means both years are significantly delayed.

Illustrative figures based on indicative fee slabs under the Companies (Registration Offices and Fees) Rules, 2014. Actual additional fee depends on the authorised capital slab and delay duration per the MCA portal calculator.

VISUAL: The Compliance Timeline You Need to Hit

Step-by-Step: How to File Under CCFS 2026

The scheme does not have a separate application form or approval workflow. The relief is baked into the MCA V3 portal’s fee calculator for the scheme window. The compliance heavy lifting happens inside the company’s books and minutes.

Step 1 – Run a ROC Compliance Audit

Log into MCA V3. Under “View Signatory Details” and “View Public Documents”, pull a complete history of past filings for every financial year since incorporation or the last filed year. Identify every missed MGT-7 / MGT-7A, AOC-4 (and variants), ADT-1, FC-3 / FC-4. If you incorporated before 2014, check for the six legacy 1956 Act forms as well. Our firm does this audit free for any company that signs up for the scheme window – reach out via the contact link below.

Step 2 – Verify Eligibility

Confirm none of the five ineligibility flags apply: Section 248 strike-off notice issued, STK-2 already filed, dormant status already held, company dissolved by amalgamation, or classification as a vanishing company. One easy check: search for the CIN on the “View Public Documents” section and look for any STK-5 or strike-off notice issued by the ROC.

Step 3 – Backfill Board Meetings and Resolutions

For each missed year, pass board resolutions to: approve the financial statements, approve the directors’ report, approve the auditor’s report, authorise signing of MGT-7 and AOC-4, and file MGT-14 where any of the approved matters triggers Section 117 requirements. Compile minute books, notices, and attendance sheets. This is where the engagement of a practising company secretary pays for itself – board meetings held out of time must be documented carefully to withstand scrutiny.

Step 4 – Hold the AGMs

Section 96 requires an AGM for every financial year. For missed years, convene an adjourned AGM or a fresh AGM (as permissible under law and the articles). Adopt the accounts. Capture the minutes and ordinary resolutions.

Step 5 – Upload Forms on MCA V3

File in chronological order: oldest year first. For each year, file AOC-4 first, then MGT-7 (or MGT-7A for small companies). ADT-1 for any auditor appointment not already reported. The portal will show reduced fees during the scheme window – verify that the fee is indeed 10% of the additional fee slab before paying.

Step 6 – Pay and Preserve Records

Pay via MCA’s online gateway. Download every challan, SRN acknowledgement, and approved form. Save copies in the company’s permanent filing folder. Keep a reconciliation sheet showing the normal fee, CCFS 2026 fee, and savings.

Step 7 – File Before the Window Closes

The form must be approved by the ROC (not just uploaded) by 15 July 2026. Given that some forms go into “Under Processing” status for 3-5 days, aim to have everything submitted by 30 June 2026 at the outside. Do not wait until the last week.

The Deeper Implication: MCA Is Clearing the Decks Before a Stricter Regime

According to CS Sapna Malpani, “CCFS 2026 is not a gift from the MCA – it is a strategic reset. The Ministry wants to close the backlog of defaulting companies either by getting them compliant (amnesty), dormant (MSC-1 at 50%), or struck off (STK-2 at 25%). Once this scheme ends on 15 July 2026, expect a sharp rise in Section 454 adjudication orders, director disqualifications under Section 164(2), and Section 248 strike-offs. Companies that ignore this window are signing up for much harder conversations in Q3 and Q4 of 2026.”

The MCA’s data-analytics muscle has grown considerably. V3 portal logs, GSTN cross-referencing, and the new Central Processing Centre (CPC) at IICA give the Ministry clear visibility into which CINs are dormant-but-active. Enforcement post-amnesty is therefore not a threat – it is a certainty. Companies with overdue filings who skip CCFS 2026 should treat adjudication notices as a matter of when, not if.

How CCFS 2026 Differs from Related Compliance Reliefs

Founders often confuse CCFS 2026 with other reliefs. It is narrower than it looks and broader in effect only for certain form categories.

Note that CCFS 2026 does NOT cover DPT-3, DIR-3 KYC, MSME Form 1, INC-22A, BEN-2, INC-20A, or PAS-6. These forms continue under their normal additional fee and adjudication regimes. A company that wants full compliance often needs both CCFS 2026 for the annual return / financial statement backlog AND ordinary filings (with full additional fees) for the other pending forms.

Key Takeaways

Sources and References

1. MCA General Circular No. 01/2026 dated 24 February 2026 – Companies Compliance Facilitation Scheme, 2026 (primary authority)
2. Companies Act, 2013 – Sections 92, 137, 164, 248, 403, 454, 460 (India Code)
3. Companies (Registration Offices and Fees) Rules, 2014 – Additional fee slabs
4. Taxmann analysis – CCFS 2026 scheme scope and eligibility
5. Taxmann – MCA Launches CCFS for Delayed Filings with 10% Additional Fees
6. Business Upturn – CCFS 2026 One-Time Amnesty Announcement
7. Comparable precedent schemes: Companies Fresh Start Scheme (CFSS) 2020, Condonation of Delay Scheme (CODS) 2018, LLP Settlement Scheme 2020

Frequently Asked Questions

What is CCFS 2026 and who is eligible?

CCFS 2026 is the Companies Compliance Facilitation Scheme, 2026 notified by MCA vide General Circular No. 01/2026 dated 24 February 2026. It runs from 15 April 2026 to 15 July 2026 and allows defaulting companies to clear long-pending statutory filings by paying only 10% of the additional fees otherwise applicable. Every active company with overdue filings is eligible, except those facing strike-off action under Section 248, companies that have filed their own strike-off applications, dormant applicants prior to the scheme, entities dissolved through amalgamation, and vanishing companies.

Which forms can be filed under CCFS 2026?

Eleven categories of forms are covered. Annual return forms: MGT-7 and MGT-7A. Financial statement forms: AOC-4, AOC-4 CFS, and AOC-4 NBFC (Ind AS). Auditor appointment: ADT-1. Foreign company filings: FC-3 and FC-4. Legacy Companies Act 1956 forms: 20B, 21A, 23AC, 23ACA, 66, and 23B. Companies can also opt for Form MSC-1 (dormant status) at 50% of normal fees or Form STK-2 (voluntary strike-off) at 25% of normal fees.

How much can a private company actually save with CCFS 2026?

The savings scale with the delay. A private company with two years of missed annual filings (FY 2023-24 and FY 2024-25) would typically pay around ₹1,33,600 in additional fees. Under CCFS 2026, the same filings cost only ₹13,360 – a saving of ₹1,20,240. For longer defaults, savings can easily exceed ₹3 lakh. This is separate from the adjudication penalty under Section 454, which can independently reach ₹5 lakh for the company and ₹50,000 for each officer in default for breach of Section 92 or 137.

Does CCFS 2026 protect directors from disqualification under Section 164(2)?

The scheme does not explicitly restore directorships already cancelled under Section 164(2) for non-filing of annual returns or financial statements for three consecutive years. However, by clearing the backlog before Section 164(2) is triggered or before the ROC takes action, directors prevent disqualification entirely. Companies whose directors are already disqualified should consult a practising company secretary, because the relief under CCFS needs to be combined with an INC-28 or a writ remedy depending on the circumstances.

What happens if a company misses the 15 July 2026 deadline?

After 15 July 2026, the normal regime resumes. Additional filing fees revert to the standard slab (up to 12 times the base fee depending on delay). More importantly, Registrars of Companies may initiate adjudication proceedings under Section 454 for breach of Section 92 (annual return), Section 137 (financial statement filing) and related provisions. Penalty exposure jumps back to ₹10,000 minimum plus ₹100 per day of continuing default for Section 92, and ₹10,000 plus ₹100 per day for Section 137. Directors also face Section 164(2) disqualification risk.

Does CCFS 2026 cover DIR-3 KYC, DPT-3, MSME-1 or INC-22A?

No. CCFS 2026 is limited to the specific forms listed in the circular – primarily annual returns (MGT-7 family), financial statements (AOC-4 family), auditor appointment (ADT-1), foreign company filings (FC-3 and FC-4) and six legacy 1956 Act forms. DIR-3 KYC, DPT-3 (return of deposits), MSME Form 1, INC-22A (ACTIVE), BEN-2, INC-20A and other compliance forms are not covered. These continue to attract normal additional fees and adjudication penalties.

Can a company use CCFS 2026 if an adjudication notice has already been issued?

Conditional yes. If the notice was issued within the last 30 days and no adjudication order has been passed, the company can still file under CCFS 2026 and secure immunity from penalty for the Section 92 or 137 default. However, if more than 30 days have passed since the notice or if an adjudication order has already been passed, the penalty liability under that order survives – only the filing fee relief remains available.

Disclaimer: This article is for information only and does not constitute legal or professional advice. Fees and penalties are illustrative and may vary based on the company’s authorised capital slab, extent of delay, and specific facts. For a binding opinion on your case, engage a practising company secretary.

What Is the FLA Return and Why Does It Exist?

The Foreign Liabilities and Assets (FLA) Annual Return is a mandatory statistical return mandated by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999. It is governed specifically by FEMA Notification No. FEMA 395/2019-RB dated October 17, 2019 and further clarified via RBI’s official FAQ on FLA Returns at rbi.org.in.

The return captures India’s foreign investment position — how much FDI Indian companies have received and how much ODI (Overseas Direct Investment) they have made. RBI uses this data to compile India’s Balance of Payments statistics and to monitor compliance with FEMA regulations across the corporate sector.

The filing obligation is not optional. Every eligible entity — regardless of whether any new foreign investment was received in the current financial year — must file if any foreign investment or overseas investment remains outstanding on the balance sheet as of March 31. This is the point where most startups go wrong.

Who Must File the FLA Return in 2026?

According to the RBI’s official FLA FAQ, the following Indian resident entities are required to file:

Who Is Exempt?

• No outstanding FDI or ODI as of March 31 in BOTH current and previous year
• Only share application money received — no actual shares issued as of March 31
• Shares issued on non-repatriable basis only (NRI investment under Schedule 4 of FEMA)

Important for Startups: If you raised a seed round two or three years ago and those foreign investors still hold shares, you must file the FLA Return every single year — even if you raised no new foreign funding in FY 2025-26. The obligation is triggered by outstanding investment, not new investment.

The July 15 Deadline — and What Happens If You Miss It

The Penalty Structure Under FEMA

Non-filing of the FLA Return is treated as a contravention of FEMA, 1999. Under Section 13 of FEMA, the penalty framework is as follows:

Consider the practical impact: a startup that missed two consecutive FLA Return filings could face ₹2 lakh per year plus ₹5,000 for every day of continuing violation — a figure that can compound to ₹10–20 lakh by the time a compounding application is filed. Compounding itself involves legal fees, a personal hearing, and a negotiated settlement payment.

The Most Common FLA Return Mistakes

Mistake 1 — “We didn’t receive new FDI this year.” The obligation is triggered by outstanding FDI or ODI, not new transactions. If foreign investors from a prior round still hold shares, the obligation applies every year until fully exited.

Mistake 2 — “Our accountant handles RBI compliance.” Chartered Accountants prepare accounts. FEMA compliance — including FLA Return filing — is a Company Secretary or FEMA specialist’s domain. Many startups discover this gap during investor due diligence.

Mistake 3 — Waiting for audited accounts. The provisional filing mechanism exists precisely for this situation. File provisional accounts by July 15, then revise by September 30 if audited figures differ. There is no valid reason to miss July 15.

Mistake 4 — Not registering on FLAIR in advance. FLAIR portal registration is not instantaneous. New entity registrations require RBI approval, which can take several business days. Register now, while you have time.

What Is the FLAIR Portal?

FLAIR stands for Foreign Liabilities and Assets Information Reporting. It is RBI’s web-based portal for FLA Return submissions. All filings must be through https://flair.rbi.org.in (AIFs may alternatively use flareturn@rbi.org.in). Physical and email submissions are no longer accepted.

Step-by-Step: How to File the FLA Return on FLAIR Portal (2026)

1. Determine Your Obligation (by April 30)
   Check your balance sheet as of March 31, 2026. If any FDI or ODI is outstanding — equity, preference shares, CCDs, SAFE notes converted to equity, or ODI holdings — you must file. Prepare a list of all foreign investors with their shareholding percentage and investment amount.
2. Register on the FLAIR Portal (by May 15 at the latest)
   Visit https://flair.rbi.org.in and complete entity registration. You will need: CIN (or LLP Identification Number), PAN, authorised signatory email address, and mobile number. Submit the registration and await RBI approval. Do this at least 3–4 weeks before the deadline to account for approval delays.
3. Download and Complete the FLA Excel Form (June)
   Log in to the FLAIR portal. Download the editable Excel FLA Return form. The form has multiple worksheets covering: entity details, FDI details (equity, reinvested earnings, other capital), ODI details, and balance of payments summary. Populate each section using your March 31, 2026 balance sheet. Use provisional figures if the audit is not yet complete.
4. Validate and Cross-Check Before Upload
   Common errors that cause rejection: mismatched PAN/CIN, incorrect financial year selection, FDI figures not tallying with FC-GPR filings, and blank mandatory fields. Cross-check your FLA figures against prior FC-GPR / FC-TRS submissions to ensure consistency. Inconsistencies can trigger an RBI inquiry.
5. Upload and Submit by July 15, 2026 — Hard Deadline
   Upload the completed Excel file to the FLAIR portal. The system generates an acknowledgement number and confirmation. Download and save this acknowledgement — it is the proof of compliance. If you are filing with provisional accounts, note this clearly in the return.
6. File Revised Return by September 30 (If Using Provisional Figures)
   Once your statutory audit is complete, compare the audited figures with what was filed. If material differences exist, file a revised FLA Return on the FLAIR portal by September 30, 2026. The revised return replaces the provisional submission.
7. Document and Archive for Due Diligence
   Store the FLAIR acknowledgement in your compliance master folder. When investors, bankers, or auditors ask for FEMA compliance evidence, the FLA Return acknowledgement is one of the first documents they request. Missing acknowledgements for multiple years is a red flag in any fundraising due diligence.

FLA Return vs FC-GPR vs FC-TRS: Understanding the Difference

The FLA Return is the only annual FEMA filing for companies with foreign investment. You must complete all transactional filings (FC-GPR, FC-TRS) as they arise AND the annual FLA Return by July 15. Each is a separate obligation. See also: FDI Reporting Guide for Indian Startups and FEMA Penalties and How to Avoid Them.

What Documents Are Needed?

• Balance sheet as of March 31, 2026 — audited or provisional
• FDI breakdown — sector-wise, equity vs preference vs CCDs, investor-wise ownership percentage
• Prior year FC-GPR filings — to reconcile cumulative FDI with FIRMS portal records
• Share register — reflecting exact shareholding of foreign investors as of March 31, 2026
• ODI details (if applicable) — for companies that have invested abroad
• Prior year FLA Return acknowledgement — for year-on-year consistency

The Implication for Startups Heading Into a Fundraise

According to CS Sapna Malpani, Practising Company Secretary in Bangalore, “the FLA Return is one of the earliest casualties of startup compliance neglect — and one of the costliest to fix. During Series A and B due diligence, foreign investors and their legal counsel routinely request three to five years of FLA Return acknowledgements. When those documents are missing, it signals a broader compliance gap that can delay or derail the fundraise entirely.”

The compounding process — RBI’s mechanism for settling past FEMA violations — involves a personal hearing before an RBI Regional Director, legal representation, a detailed application, and a monetary settlement. The process typically takes four to eight months and costs significantly more than the original late submission fee. For a startup planning to raise capital in the next six to twelve months, triggering a compounding application is a complication that can be entirely avoided by filing on time.

As RBI continues to digitise and cross-reference its FIRMS portal data (FC-GPR, FC-TRS) with FLAIR submissions (FLA Returns), instances of automated non-filing detection are expected to increase. The days of “nobody checked” are ending.

Sources and References

1. RBI Official FAQ on Foreign Liabilities and Assets Annual Return — Reserve Bank of India (Gold Source)
2. FEMA Notification No. FEMA 395/2019-RB dated October 17, 2019 — Reserve Bank of India (Gold Source)
3. A.P. (DIR Series) Circular No. 16 dated September 30, 2022 — RBI Late Submission Fee of ₹7,500 (Gold Source)
4. Foreign Exchange Management Act (FEMA), 1999 — Section 13 — India Code (Gold Source)
5. FLA Return: RBI’s Annual Foreign Liabilities and Assets Return — TaxGuru (Silver Source)
6. Overview of Foreign Liabilities and Assets Annual Return — Complinity (Silver Source)

Frequently Asked Questions

What is the FLA Return deadline for 2026?

The FLA Return deadline for 2026 is July 15, 2026. This applies to Indian companies, LLPs, and other eligible entities with outstanding FDI or ODI as of March 31, 2026. If accounts are not audited by July 15, file using provisional figures by July 15 and revise with audited figures by September 30, 2026. RBI has extended the deadline in previous years (e.g., July 31, 2025) but no extension has been announced for 2026 as of April 2026.

Who must file the FLA Return in India?

Companies registered under the Companies Act 2013, LLPs, SEBI-registered AIFs, partnership firms with foreign investment, and PPPs must file if they have outstanding FDI or ODI as of March 31. Critically, you must file even if you received no new FDI during the year — if prior-year foreign investment remains outstanding, the obligation applies.

What is the penalty for not filing the FLA Return?

Under Section 13 of FEMA 1999: penalty up to three times the sum involved; or if non-quantifiable, ₹2,00,000; plus ₹5,000 per day for continuing violation. A Late Submission Fee of ₹7,500 applies for filing after July 15 (per RBI A.P. DIR Circular No. 16, September 30, 2022).

How do I file the FLA Return on the FLAIR portal?

Visit https://flair.rbi.org.in. Register with CIN/PAN/email. Download the Excel FLA Return form. Populate all sections. Upload. Download acknowledgement. AIFs may alternatively email flareturn@rbi.org.in. No offline submissions accepted.

Is my startup exempt from filing the FLA Return?

Only if: no outstanding FDI/ODI in both current AND previous year; OR only share application money with no shares issued by March 31; OR shares on non-repatriable basis only. If any foreign investor holds shares in your startup — from SAFE notes, CCDs, equity, or preference shares — you must file.

Can I file with unaudited accounts?

Yes. File provisional return by July 15 using unaudited management accounts. After audit, if figures differ materially, file revised return by September 30, 2026. No valid excuse exists for missing July 15.

What documents do I need?

Balance sheet as of March 31, 2026 (audited or provisional); FDI details (valuation, ownership %, instrument type); ODI details if applicable; CIN/PAN/email for FLAIR registration; prior year FLA Return acknowledgement; share register showing foreign investor holdings as of March 31.

What is the FLA Return deadline for LLPs in 2026?

LLPs with outstanding FDI or ODI must also file by July 15, 2026 on the FLAIR portal. The FEMA penalty structure is identical to companies: up to ₹2 lakh or 3x contravention amount, plus ₹5,000/day for continuing non-compliance.

This article is for informational purposes only and does not constitute legal advice. FEMA regulations and RBI circulars are subject to change. For advice specific to your entity’s compliance situation, consult a qualified Company Secretary or FEMA practitioner. CS Sapna Malpani is a Practising Company Secretary based in Bangalore, India, specialising in FEMA compliance, MCA filings, and corporate secretarial services. Contact her here.