Amendment Provisions Loan to Director: Section 185 & 186
Amendment Provisions Loan to Director:
·
New
Section 185 (1)
·
Any director of Company, or of a Company which is its Holding
Company or
·
any partner or relative of
any such director; or
·
Any firm in which any such director or relative is partner.
Subsection 2:
Following
loan can be given by company to any person in whom directors are interested
after fulfilling the conditions mentioned below:
·
Advance any loan, including loan represented by a book debt
·
Give any guarantee
·
Provide any security in connection with any loan taken
Conditions:
a) Special
Resolution passed by the Company in General Meeting
b) The loans
are utilized by the borrowing company for its principal business activities.
Sub-section 3: Nothing contained in
sub-section (1) and (2) shall apply to-
Clause (a): Loan to
Managing Director & Whole Time Director:
There are two ways to give Loan to Managing and
Whole Time Director. The exception is extended to a particular class of
directors, i.e. to the managing or whole-time directors only.
i.
Loan can be given to a Managing
or Whole-Time Director as a part of the condition of their
service.
Condition: Conditions
should be available for all the employees of the Company.
ii.
Loan can be given to a Managing
or Whole-Time Director pursuant to any Scheme.
Condition:
Scheme should be approved by Shareholders by passing of Special
Resolution.
Example: The Companies pass a resolution
for appointment of Managing Director and it approves the terms and conditions
of its appointment and if as a part of its terms, there is a loan which can be
given to that director, then it falls under the exception given in section 185
of the Act.
Clause (b): Loan in
Ordinary Course of Business:
A company which in the Ordinary Course of its business provides:
-
Loans or
-
Gives
guarantees or
-
Securities
for the due repayment of any loan and
-
In respect
of such loans an interest is charged at a rate not less than the rate of
prevailing yield of one year, three year, five year or ten year government
security closest to the tenor of the loan; or.
Clause (c): Loan by
holding Company to its wholly own subsidiary Company:
Any loan made by a
Holding Company to its Wholly own Subsidiary Company or any guarantee given or
security provided by a Holding Company in respect of any loan made to its
wholly own subsidiary Company.
Condition: loan made under this clause
utilized by the subsidiary company for its principal
business activity only.
Clause (d): Guarantee
and Security by holding Company to its subsidiary Company:
Any
guarantee given or security provided by a Holding Company in respect of Loan
made by any Bank or financial institution to its subsidiary Company.
Condition: loan made under this clause
utilized by the subsidiary company for its principal
business activity only.
Sub-section 4: Punishment for
violation -: According to sub-section 2 of Section 185 of
the Act, if any loan is advanced or a guarantee or security is given or
provided in contravention of the provisions of sub-section (1):
(a) The Company shall be
punishable with fine which shall not be less than 5 lakh
rupees but which may extend to 25 lakh rupees, and
(b) The Director
Or The Other Person to whom any loan is advanced or guarantee or
security is given or provided in connection with any loan taken by
him or the other person, shall be punishable with imprisonment which may extend
to 6 months or with fine which shall not be less than 5 lakh rupees but which
may extend to 25 lakh rupees, or with both.
EFFECTO OF AMENDMENT IN THE BILL U/S 185:
As per amendment Bill,
2016 following will be effects on Loan to director and person in whom director
are interested:
1. Company can give loan, Guarantee, Security to
person in whom director are interested
after
passing of special resolution in General Meeting. Condition company will use
such money for the principle business activity of the Company.
Like:
Private Company in which director is director or member. Exp. If person A is Director in Company XYZ Pvt Limited and PQR
Private Limited. In such situation XYZ limited are allowed to give loan and
guarantee to PQR limited after passing of special resolution.
2.
Companies
are still restricted to give loan, guarantee and security to
·
Any director of Company, or of a Company which is its Holding
Company or
·
any partner or relative of
any such director; or
·
Any firm in which any such director or relative is partner.
3.
The term
“any person in whom any of the director of the Company is interested” has been
changed.
Definition
as per Companies Act, 2013
|
Definition
as per Companies Amendment Bill, 2016
|
Any other director of the lending company,
|
|
Any
director of the holding company of
the lending company
|
|
Any partner or relative of such director
|
|
Any private company of which director is
a director or member
|
Any private company of which director is
a director or member
|
Body
Corporate in which 25% or more voting
power rests with one or more directors
|
Body
Corporate in which 25% or more voting
power rests with one or more directors
|
Body
Corporate whose Board accustomed to
act on directions of BOD or Directors of lending company.
|
Body
Corporate whose Board accustomed to
act on directions of BOD or Directors of lending company.
|
New Section 186:
Subsection (1) shall be omitted
Sub Section (2): In sub-section 2 the word “Person” does not
include any individual who is in the employment of the Company;
Sub Section (3): Where aggregate of any Loan & Guarantee or
providing any security or the acquisition
exceeds the limit mention in sub section 2 then no investment or loan
shall be made or guarantee shall be given or security shall be provided unless
previously authorized by a Special Resolution passed in the General Meeting.
Exemption to Sub Section (3):
Proviso:
This sub-section 3 will not apply to
·
Where a Loan or
guarantee is given or Where security has been provided by a Company to
§ its wholly owned subsidiary Company or
§ Joint Venture Company; or
·
Where any acquisition
is made by a holding Company, by way of subscription, purchase or otherwise of
the securities of its wholly owned subsidiary Company,
Explanation:-
for the purpose of this section:
a) the expression “investment company” means a company whose
principal business is
the acquisition of shares, debentures or other securities
and a Company will be deemed to be principally engaged in the business of
acquisition of shares, debentures or other securities, if its assets in the
form of investment in share, debentures or other securities constitute not less
than 50% of its total assets, or if its income derived from investment business
constitutes not less than 50%, as a proportion of its gross income.
Sub Section (11): Section 186 not applicable to
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