Presentation on Provisions of Presentation on Provisions of Companies Act 2013 Companies Act 2013

Relating to Borrowing and LendingRelating to Borrowing and Lending

byby

CS Nalin GanatraCS. Nalin GanatraB.com, L.L.B, A.I.I.I, F.C.S

P ti i C S tPractising Company Secretray

307, Golden Space , Sardar Nagar Main Road, Opp. Rajkot Color Lab, Rajkot

Phone :0281-6641583Email id: nalinganatra@gmail.com

New Concepts in Companies Act 2013New Concepts in Companies Act 2013

Private Company is no more ‘Private’:

New classification of Companies- Small Companiesand One Person Company

Transactions at ‘Arm length’ and ‘Ordinary Courseof Business’

Duties of Director

Sec.166 Sec.166 -- Duties of DirectorDuties of Director

Director shall act in accordance with the Article of company.

Director of company shall act in good faith in order to promoteDirector of company shall act in good faith in order to promotethe object of company for the benefit of member and interestof employee company, its employee and shareholder.

Di t h ll i hi d ti ith d d blDirector shall exercise his duties with due and reasonable care,skill and diligence.

Director of company shall not involve in situation wherep yhe may have direct or indirect interest that conflict withinterest of company.

Director shall not achieve or attempt to achieve undueDirector shall not achieve or attempt to achieve unduegain or advantage either by himself or through hisrelatives, partner and associates.

Director shall not assign his office and any assignment madeshall be void.

BORROWINGBORROWING

POWER OF BORROWING

Board of Directors : Up to paid up capitaland free reserves.

SHAREHOLDERS : By way of speciall ti fresolution for

borrowing in excessof paid up capital andfree reservefree reserve.

TYPES OF BORROWINGTYPES OF BORROWING

Borrowing from Banks and Financial Institutionsagainst the security of the assets of the Companyand/or security/guarantee of other groupassociates

CAR loan from banks/finance companiesCAR loan from banks/finance companies

Inter corporate loans from Related Parties and nonrelated parties

Unsecured loan from Related PartiesUnsecured loan from Related Parties

NEW CHANGES FORBORROWINGNEW CHANGES FORBORROWING

Banks and Financial Institutions: it / t f th C i security/guarantee of other group Companies can

not be availed- sec-185.

CAR loan from banks/finance companies- Car to bepurchased in the name of Company only and not inthe name of Director-Sec-187

Inter corporate loans from Group Companies cannot be availed- Sec. 185

Unsecured loan Shareholders and Relatives ofDirectors can not be availed- new definition ofDirectors can not be availed new definition ofdeposit

EXEMPTED DEPOSITSEXEMPTED DEPOSITS

Any amount received from:Government including Foreign Government.

NRI/PIO (Who is foreign Citizen) Subject to FEMA Provisions.

Banks and Financial Institutions.

Other Companies i.e. Inter Corporate Borrowings.

Director subject to declaration that he has not borrowed thatDirector subject to declaration that he has not borrowed thatamount from others.

Promoter or Relatives of promoters as per stipulation of BankFi i l I tit tior Financial Institution.

Issuance of Secured Debentures.

Issuance of ‘Compulsory Convertible Debenture or Bonds in toshares within a period of Five Years.

COMPLIANCE IN RESPECT OF EXISTING COMPLIANCE IN RESPECT OF EXISTING DEPOSITDEPOSITDEPOSITDEPOSIT

All existing unsecured loan which are now‘DEPOSIT’ as per new provisions, shall berepayable on due date or latest by 31/03/2015.

All Companies having any such deposit requires tofile Form DPT3/DPT4 duly certified by Auditor of theC b f 30/06/2014Company before 30/06/2014.

Sec. 179(3) : Power of Board of Director which shall beexercised at meeting of Board:

a. Calls on shareholders

b Authorize buy back of securities under section 68b. Authorize buy-back of securities under section 68

c. Issue securities, including debentures

d. Borrow moniesd. Borrow monies

e. Invest the funds of the companyf. Grant loans or give guarantee or provide security in

respect of loansrespect of loansg. Approve financial statement and the Board’s report

h. Diversify the business of the company

i. Approve amalgamation, merger or reconstructionj. Take over a company or acquire a controlling or substantial

stake in another company;stake in another company;

k. Any other matter which may be prescribed

Delegation of Power of Board of DirectorDirector

Board may delegate power specified in clause (d) to(f) of Sub section (3) of Section 179 with suchcondition as may be specified in resolution passedat meeting of board to following :

P i i l

Committee of Director

Principal officer of branch office in

Managerof Director office in

case branch of company

Managing Director

Principal officer of Company

Sec.180 Sec.180 –– Restriction on Power of Restriction on Power of BoardBoard

180. (1) : The Board of Directors of a company shall exercisethe following powers only with the consent of thecompany by a special resolution, namely

To sell, lease or otherwise dispose of the whole orsubstantially the whole of the undertaking of the companyor where the company owns more than one undertaking of theor where the company owns more than one undertaking, of thewhole or substantially the whole of any of such undertakings ;

To invest otherwise in trust securities the amount of compensationd b l f lreceived by it as a result of any merger or amalgamation;

To borrow money, where the money to be borrowed,together with the money already borrowed by the companyg y y y p ywill exceed aggregate of its paid-up share capital and freereserves, apart from temporary loans obtained from thecompany’s bankers in the ordinary course of business ;

To remit, or give time for the repayment of, any debt duefrom a director.

LENDINGLENDING

POWER OF LOAN AND INVESTMENT

Board of :up to sixty per cent of its paid-upDi t h it l f dDirectors share capital, free reserves and

securities premium account or onehundred per cent of its free

d i i ireserves and securities premiumaccount, whichever is more

Shareholders : by way of special resolutionfor Loan and Investment inexcess of above limitexcess of above limit.

TYPES OF LENDINGTYPES OF LENDING

Loan etc to Directors, Group Companies and Firms.

Loan etc to other Companies and persons.

Investments in the securities of other bodycorporate.

Sec. 185Sec. 185-- Loan to Director or Loan to Director or Sec. 185Sec. 185 Loan to Director or Loan to Director or other personsother persons

Applicability

All Companies

OTHER PERSON MEANS:OTHER PERSON MEANS:

RELATIVE OF DIRECTORS.

DIRECTORS OR RELATIVES OF HOLDING COMPANY.DIRECTORS OR RELATIVES OF HOLDING COMPANY.

FIRM IN WHICH DIRECTOR OR RELATIVE IS APARTNER.

ANY PRIVATE COMPANY OF WHICH SUCH DIRECTORIS A DIRECTOR OR MEMBER.

ANY BODY CORPORATES (INCLUDES PUBLIC COMPANYAND LLP) AT GENERAL MEETING OF WHICH >25%VOTING POWER EXERCISED BYVOTING POWER EXERCISED BYDIRECTOR/DIRECTORS.

ANY BODYCORPORATE WHICH ‘ACCUSTOMED TO ACT’ANY BODYCORPORATE WHICH ACCUSTOMED TO ACTIN ACCORDANCE WITH LENDING COMPANY (INDIRECTCONTROL).

SectionSection--185(1) 185(1) ––Transactions CoveredTransactions Covered

DIRECT OR INDIRECT LOANSLOANS REPRESENTED BY BOOK DEBTSLOANS REPRESENTED BY BOOK DEBTSGUARANTEEPROVIDING SECURITY IN CONNECTION WITH LOAN

EXEMPTIONSEXEMPTIONS

GIVING LOAN TO M D /W T D : Transactions in theGIVING LOAN TO M.D./W.T.D.:

As a part of Scheme applicable to all employees or

Transactions in the‘ordinary course of itsbusiness’ and interestcharged at a rate not lessp y

Scheme approved by members by way of Special Resolution.

than the Bank Rate decidedby RBI.

RuleRule--10 : Exemption10 : Exemption

Loans Guarantee

Guarantee given

Loan made byHoldingC i

Guarantee givenor securityprovided by aholding

i

Guarantee given orsecurity providedby holdingcompany inCompany to its

wholly ownedsubsidiarycompany

company inrespect of loanmade to itswholly owned

company inrespect of loanmade by bank orfinancial institutiont it b idicompany wholly owned

subsidiarycompany

to its subsidiarycompany

Sec. 186Sec. 186-- Loan and Investment by Loan and Investment by Sec. 186Sec. 186 Loan and Investment by Loan and Investment by companiescompanies

Applicability

All Companies

SecSec..186186((22)) –– GivingGiving ofof LoanLoan oror GuaranteeGuarantee bybythethe companycompany toto anyany personperson oror bodybody corporatecorporatethethe companycompany toto anyany personperson oror bodybody corporatecorporate

No company shall directly or indirectly:-

Give any loan toGive any guaranteeor provide security in Acquire by way of

b i i hGive any loan toany person orother bodycorporate;

or provide security inconnection with aloan to any otherbody corporate or

subscription, purchaseor otherwise, thesecurities of any otherbody corporate.person; body corporate.

Not Exceeding Sixty per cent. of its Paid-up Share Capital, Free Reserves and Securities Premium Account

orOne Hundred Per Cent. of its Free Reserves and Securities

Premium Account, whichever is more.

SecSec..186186((33)) –– SpecialSpecial ResolutionResolution isis toto bebepassedpassed forfor givinggiving loanloan oror guaranteeguarantee byby thethepassedpassed forfor givinggiving loanloan oror guaranteeguarantee byby thethecompanycompany toto anyany otherother personperson oror bodybody corporatecorporate

If it Exceed Sixty per cent. of its Paid-up Share Capital, Free Reserves and Securities Premium Account Free Reserves and Securities Premium Account

orOne Hundred Per Cent. of its Free Reserves and Securities

Premium Account, whichever is morePremium Account, whichever is more

Prior approval by means of a special resolution d t l ti h ll b passed at a general meeting shall be necessary.

Sec.186(4) -Disclosure to th b

Disclosure in financial statement the fullparticulars of the loans given, investmentmade or guarantee given or securityprovided and the purpose for which thethe members

In the financial statements

provided and the purpose for which theloan or guarantee or security is proposedto be utilized by the recipient of theloan or guarantee or security.

Sec.186(5)-Sanctioned at board meeting

Unanimous consent of Board and

Prior approval of the public financialinstitution where any term loan isg

by passing resolution and

obtaining consent of

institution where any term loan isobtained

Prior approval of public financialinstitution is not required if where

public financial institution

institution is not required if whereaggregate loan and investment does notexceed prescribe limit u/s 186(2) andthere is no default in the repayment ofloan or payment of interest thereon

Sec.186(6)-Companies

which cannot take

loan or payment of interest thereon

SEBI Registered intermediary shall nottake inter-corporate loan or depositsexceeding the prescribed limit and such

interoperate loan exceeding prescribe limit

exceeding the prescribed limit and suchcompany shall furnish in its financialstatement the details of the loan ordeposits

Sec.186(7) –Rate of giving

Rate of interest shall not be lower thanthe prevailing yield of one year threeRate of giving

loan

Sec.186(8) -

the prevailing yield of one year, threeyear, five year or ten year GovernmentSecurity closest to the tenor of the loan.

Sec.186(8) Default in respect of

repayment of deposit and

Company which is in default ofrepayment of any deposits shall not giveany loan or give any guarantee or provideany security or make an acquisition till suchdeposit and

interest

Sec.186(9) –

any security or make an acquisition till suchdefault is subsisting.

Every company shall keep a register whichshall contain such particulars and shall be( )

Register to be maintained

shall contain such particulars and shall bemaintained in such manner as may beprescribed

Register is required to be kept open for

Sec.186(10) –Place of

register to be i t i d

Register is required to be kept open forinspection at Registered office and

Extracts may be taken there from by anymember and copies thereof may bemaintained

and inspection of register

member, and copies thereof may befurnished to any member of the companyon payment of such fees as may beprescribed.

Sec.186(11) - Exemptions

a b

For Loan, Guarantee and Security Acquisition of Securities

Companies

OR OR

In

OR OR

Banking or

Companies engaged in the

business of financing of

companies or

In respect of

share allotted in Right Issueor

Insurance Company

Housing

infrastructural facilities Registered

NBFC for landing

and

Issue Company whose

principal business is

the Housing finance

companies

and investment activities

the acquisition

of securities

RuleRule--11 : Exemption from passing 11 : Exemption from passing Special ResolutionSpecial ResolutionSpecial ResolutionSpecial Resolution

Loans or Guarantee is given or Securities g

provided by company to:

Wholly owned

Acquisition is made by holding company by way Wholly owned

subsidiary company

Joint venture company

company by way of subscription,

purchase or otherwise of otherwise of

securities

Of its Wholly owned subsidiary company

Sec.117(3) : Filing of Resolution with ROCwith ROC

All Special ResolutionAll Special Resolution

Resolutions passed in pursuance of sub-section(3) of section 179 and(3) of section 179; and

Any other resolution or agreement as may beib d d l d i th bli d iprescribed and placed in the public domain.

Resolution passed subResolution passed sub--section (3) of Section section (3) of Section 179 include :179 include :

a. To make calls on shareholders in respect of money unpaidon their shares;

b To authorize buy-back of securities under section 68;b. To authorize buy-back of securities under section 68;c. To issue securities, including debentures, whether in or

outside India;

d To borrow monies;d. To borrow monies;

e. To invest the funds of the company;f. To grant loans or give guarantee or provide security in

respect of loans;

g. To approve financial statement and the Board's report;

h To diversify the business of the company;h. To diversify the business of the company;

i. To approve amalgamation, merger or reconstruction;j. To take over a company or acquire a controlling or

substantial stake in another company;substantial stake in another company;

k. Any other matter which may be prescribed

RuleRule--88 ––prescribeprescribe following resolutionfollowing resolution

To make political contributions;

To appoint or remove key managerial personnel (KMP);

To take note of appointment(s) or removal(s) of one level belowthe Key Management Personnel;

To appoint internal auditors and secretarial auditor;

To take note of the disclosure of director’s interest and

shareholding;

T b ll i t t h ld b th ( th th t dTo buy, sell investments held by the company (other than trade

investments) which Constituting five percent or more of the paid

up share capital and free reserves of the investee company;p p p y;

To invite or accept or renew public deposits and related matters;

To review or change the terms and conditions of public deposit;

To approve quarterly, half yearly and annual financialstatements or financial results as the case may be.

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•The above communication is on issues relating to New Companies Act, 2013relating to company law matter which have been prepare for private circulation torelating to company law matter which have been prepare for private circulation toour Clients. They should not regard them as comprehensive study of the topicconcerned or as providing legal advice. The presentation should not be treated assubstitute for taking specific legal advice concerning individual situations.

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