LOANS INVESTMENTS UNDER COMPANIES ACT 2013 ADV Arun

LOANS & INVESTMENTS UNDER COMPANIES ACT, 2013 ADV. Arun Saxena & Saxena Law Chambers Advocates & Attorneys 603 -604, New Delhi House 27, Barakhamba Road, New Delhi – 110 001. Mob. : 9810037364 E-mail : arunsaxena@saxenaandsaxena. com

2 Loans to directors ( Section 185) HISTORY: * Notification of Section 185 * Amendment Act, 2015 * Amendment by Notification * Amendment Act, 2017 SAXENA & SAXENA 12. 09. 2013 29. 05. 2015 05. 06. 2015 04. 01. 2017 07. 05. 2018

Loan to Directors (Section 185) wef. 7. 5. 2018 3 (1) No company shall directly or indirectly advance any loan (including represented by book debts) to or give guarantee or providing security in connection with any loan taken by (a) Any Director of the company or its holding company or Any partner or relative of such director or (b) Any Firm in which any such director or relative is partner SAXENA & SAXENA

Loan to Directors (Section 185) 4 (2) A company may advance any loan (including represented by book debts) to or give guarantee or providing security in connection with any loan taken by any person in whom any of its director is interested subject to following : (a) Special Resolution is passed (disclosure of full particulars, purpose & other relevant facts in explanatory statement of Notice of EGM) (b) Loans are utilized for principal business activities SAXENA & SAXENA

Loan to Directors (Section 185) 5 Explanation : Any person in whom director of the company is interested means: (a) Private limited Company of which such director is director or member. (b) Body Corporate (i) If not < 25% of voting power is exercised/controlled by such director or by two or more such Directors. (ii) BOD Or MD or Manager are accustomed to act with. SAXENA the&directions of SAXENA BOD/Directors of lending co.

Loan to Directors (Section 185) 6 Inserted vide notification dated 4 th January, 2017 (c) In Case of Specified IFSC Public & Private Company : Any Private Company of which any such Director is a Director or member in which director of lending company do not have direct or indirect share holding through themselves and SR is passed. SAXENA & SAXENA

Loan to Directors (Section 185) 7 EXCEPTIONS: a. Company can provide the loan to MD OR WTD, if it is a part of condition of service extended by company to its employees. Or Pursuant to any scheme approved by Special Resolution. b. Companies having business to provide loans and gives guarantee or securities (NBFC), interest shall not lesser than the rate of prevailing yield of SAXENA 1, 3, 5 or 10 yrs of govt. securities.

Loan to Directors (Section 185) 8 (c) Loan given by holding company to its wholly owned subsidiary or guarantee given or security provided by holding company in respect of the loan to wholly owned subsidiary company. (d) Any guarantee given or security provided by holding company in respect of loan by any bank or financial institution to its subsidiary company. * Provided such loans are utilised by subsidiary company for its principal business. SAXENA & SAXENA

Loan to Directors (Section 185) 9 Inserted by Notification dated 5 th June, 2015. Provisions of Section 185 are not applicable to : 1) Private Company : a) No investment of Body in its capital b) Borrowings from banks & Fis less than twice of paid SAXENA & SAXENA

Loan to Directors (Section 185) 10 2) Nidhi Companies Director or a) loan given to his relative in their capacity as members. b) These transactions are disclosed in F/S by note 3) Government Co. With approval from SAXENA & SAXENA

Loan to Directors (Section 185) 11 PENALTIES: § Company : Not < Rs 5 lakh upto Rs. 25 lakh §Officer in default : IMP. upto 6 months or Fine Rs 5 L -25 L § Director or any other person to whom loan given or security : IMP. upto 6 months or Fine Rs 5 L -25 L or SAXENA & SAXENARs BOTH

Investments (Section 186) 12 (1) Without prejudice to the provisions of the Act, Unless otherwise provided, Company cannot make investment through not more than 2 layers of investment companies. Exceptions: Acquisition of any other company incorporated outside India if such other company has investment beyond two layers as per the laws of that country. Investment by subsidiary company in investment subsidiary for the purpose of meeting any requirement under any law SAXENA & SAXENA in force.

Loans & Investment by Company (Section 186) 13 (2) No company shall directly or indirectly: (a) Give loan to any person or other body corporate (b) Give guarantee or Provide security in connection with loan to any other Body corporate or person and (c) Acquire/Purchase the securities of any other body corporate. Explanation: ( Inserted by Amendment Act, 2017) Person does not include any individual who is an employee of the company SAXENA & SAXENA

14 Loans & Investment by Company EXCEEDING 60% of capital +free reserve & Premium OR 100% of free reserve +premium whichever is higher If exceeds the limits prior approval by S/R is required. ( Inserted by Amendment Act 2017) Provided S/R Is not required, If i) Loans / guarantee provided or given to wholly owned subsidiary, Joint Venture or acquisition by holding company & ii) Disclosure is made in F/S SAXENA & SAXENA

15 Loans & Investment by Company Other conditions: No loan / investment/guarantee/security without: (i) passing of Board resolution by all the directors present in the meeting or by circulation (inserted vide notification dated 4. 1. 2017) SAXENA & SAXENA

16 Loans & Investment by Company (ii) The consent of financial institution is required if term loan granted by it subsists at the time of transaction. Provided Consent is not required when amount does not exceed the limits and if no default in repayment. SAXENA & SAXENA

Loan & Investment by Company 17 No company, registered U/s 12 of SEBI Act, shall take ICDs/ deposits exceeding the prescribed limits & disclosure shall be in F/S. The rate of interest should not be lower than prevailing the yield of 1, 3, 5, and 10 years of Government securities. provided in case of section 8 companies this provision of not applicable if 26% or more paid up capital is held by CG/SG in respect of loan provided for industrial research & development projects. ( Inserted by Notification Dt. 13 th June 2017) SAXENA & SAXENA

Loan & Investment by Company 18 Company Cannot give any loan/investment if company is in default of repaying deposit or interest and said default subsists. Company shall maintain register @ Registered office & will be open for inspection. SAXENA & SAXENA

Loan & Investment by Company 19 Inserted by notification dated 4 th January, 2017: In case of specified IFSC public & private Company section 186( 1) is not applicable section 186 (2) & (3) shall not applicable if resolution is passed in the meeting of BOD or by circulation SAXENA & SAXENA

Loans & Investment by Company 20 Exemptions: Nothing , except sub section 1 shall apply 1. 2. 3. 4. 5. 6. (a) To Loan/guarantee securities provided by * Banking company, * Insurance company and *Housing finance companies. Or *Company engaged in business of Industrial Enterprises providing infrastructure facilities. 7. SAXENA & SAXENA

21 Loans & Investment by Company 1. 2. 3. 4. (b) To any investment (i) made by an investment co. (ii) made in right shares (iii) by NBFC whose principal business is for acquisition of securities( Only for investment & lending activities) SAXENA & SAXENA

22 Loans & Investment by Company Explanation: Investment company means: (i) Principal business is acquisition of shares, debenture & other securities. (ii) If assets in the form of investment etc constitute Not less than 50% of total assets. (iii) if income derived from investment business constitutes not less than 50% of gross income. SAXENA & SAXENA

23 Loans & Investment by Company Inserted vide notification dated 5 th June 2015 The provisions of section 186 are not applicale to Govt. company engaged in defence production Government ( other than listed company) which obtains prior approval from CG/SG/ concerned ministry. SAXENA & SAXENA

24 Loans & Investment by Company Penalties: Company : not < Rs. 25000 up to Rs. 5 lakh Officer in default : Imp : upto 2 years fine not < Rs. 25 K to 1 lac. SAXENA & SAXENA

THANK YOU 25 SAXENA & SAXENA