Loans & advances

Under companies act, 2013

To director or company in which director is interested

Sec 185

To any other Companies

Sec 186

Sec 185Sec 185as per the companies act,2013 & circular by MCA (dated 14.2.2014)as per the companies act,2013 & circular by MCA (dated 14.2.2014)

No company No company → shall→ shall

Directly or

Indirectly

• Any of its Director

•Person in whom director is interested

Advance any Advance any loan (including loan (including book debt)book debt)

Or Give any Or Give any guaranteeguarantee

Or Provide any Or Provide any securitysecurity

to

Person in whom director is interested☻☻☻☺☺☺

Director of lending co. or Director of holding co. or any partner or relative of any such director,

Any firm in which any such director or relative is a partner,

Any private co. of which any such director is a director or member,

Any body corporate of which any such director or directors having ≥25% of total voting power,

Any body corporate if its BOD, MD or manager act as per direction of board or of any of director , of lending company.

Exception of sec 185Exception of sec 185

Loan to MD or WTD If as per part of condition of service to all employees or approved by members by SR

L/G/S by co. in ordinary course of business Interest rate ≥ bank rate

L/ G/S by holding co. to wholly owned subsidiary Co. (WOSC) loan is utilized for its (WOSC) Principle business activities

PENALTYPENALTY ((if noncompliance with sec185if noncompliance with sec185))

Company-Company-

Fine ≥ 5lakh up to Fine ≥ 5lakh up to 25 lakh rupees 25 lakh rupees

Director or other Director or other person person

Imprisonment – up Imprisonment – up to 6 monthsto 6 months

ororFine ≥ 5 lakh up to Fine ≥ 5 lakh up to 25 lakh rupees25 lakh rupees

oror bothboth

PRACTICAL SOLUTION PRACTICAL SOLUTION OF SEC 185OF SEC 185

Convert borrower company to limited company (if common director hold <25% of borrowing company)

Convert lender & borrower to LLPChange in directorship,

shareholding

LOANS AND INVESTMENT LOANS AND INVESTMENT BY COMPANY [SECTION BY COMPANY [SECTION

186]186]

SECTION 186(1)

• NO INVESTMENT THROUGH MORE THAN 2 LAYERS OF INVESTMENT COMPANIES.

SECTION 186(1)

• SEC186(1) Shall not have effect –

(i) if a co. acquires any co. which is incorporated outside India and such co. has investment subsidiaries beyond two layers as per law of such country.

(ii) A subsidiary co. from having any investment subsidiary for meeting requirement under any law.

SECTION 186(2)SECTION 186(2)No company shall directly or No company shall directly or

indirectly-indirectly-Give loan to any person or body corporate,Give loan to any person or body corporate,

Give guarantee or provide security in Give guarantee or provide security in connection with loan to any other body connection with loan to any other body corporate or person andcorporate or person and

Acquire by way of subscription, purchase, Acquire by way of subscription, purchase, securities of any other body corporatesecurities of any other body corporate

60% of paid up capital 100% of free reserve

+free reserve or +securities

+ securities premium premium

Exceeding -

APPROVAL FROM MEMBERS APPROVAL FROM MEMBERS SECTION 186(3)SECTION 186(3)

If loan or guarantee or security or acquisition If loan or guarantee or security or acquisition exceeds the limitsexceeds the limits specified in sec 186(2), specified in sec 186(2), then prior approval of members by then prior approval of members by specialspecial resolutionresolution at general meeting shall be at general meeting shall be necessary.necessary.

Approval of board and Approval of board and public financial public financial

institution[sec186(5)]institution[sec186(5)]Every company shall take consent of Every company shall take consent of all the all the directorsdirectors present at board meeting before present at board meeting before making LGSmaking LGS

In case of company has already taken loan In case of company has already taken loan from any public financial institution then it is from any public financial institution then it is mandatory to take mandatory to take prior approval from such prior approval from such public financial institution.public financial institution.

EXCEPTION – EXCEPTION –

i.e. prior approval of PFI shall not required-i.e. prior approval of PFI shall not required- LGS is within the limits as specified under LGS is within the limits as specified under

sec186(2)sec186(2) No default in repayment of loan installments No default in repayment of loan installments

or interest.or interest.

NON APPLICABILITY OF NON APPLICABILITY OF SEC186SEC186

Nothing contain in sec186 , except Nothing contain in sec186 , except sec186(1), shall apply-sec186(1), shall apply-

(a)(a)To LGS provided by a banking co.To LGS provided by a banking co.

or an insurance co.or an insurance co.

or a housing finance co.or a housing finance co.

or co. engaged in business of financing of or co. engaged in business of financing of companies or of providing infrastructural companies or of providing infrastructural facilities.facilities.

(b)(b) To any acquisition – To any acquisition – Made by NBFC registered under RBIMade by NBFC registered under RBI Made by co. whose principal business is Made by co. whose principal business is

acquisition of securitiesacquisition of securities Shares allotted in section62(1)Shares allotted in section62(1)

PENALTY FOR CONTRAVENTION PENALTY FOR CONTRAVENTION OF SECTION186OF SECTION186

FOR COMPANY

Fine- >Rs 25000 Up to Rs 5,00,000

FOR OFFICERS-

Imprisonment- up to 2 years

Fine- >Rs 25000 up to Rs 1,00,000

THANK YOUTHANK YOU☻☻☺☺☻☻

CS MONIKA AGARWAL[CA(FINAL) CS MONIKA AGARWAL[CA(FINAL) STUDENT]STUDENT]

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