CS Lovkesh Batra
This kind of prohibition was really needs to be amended and the same has been brought by Companies Amendment Bill, 2016 by removing some prohibition clauses and introduces some of the restrictions which are subject to the shareholders approval.
Big thanks to Companies Amendment Bill, 2016!!!!
Now, let us read the various changes which have been proposed in the section 185 under the Companies Amendment Bill, 2016.
|Section 185||Provision under Companies Amendment Bill, 2016||Prohibition/Restriction|
|185(1)||Company Shall not directly or indirectly give loan (including any loan represented by a book debt)/guarantee/security to:||Prohibitions: |
1. Its own Directors
2. Directors of its Holding Company
3. Any partner of own Directors
4. Any partner of Holding Company’s Directors
5. Any relative of own Directors
6. Any relative of Holding Company’s Directors
7. Any Firm in which own Director is partner
8. Any Firm in which Holding Company’s Director is partner
9. Any Firm in which any relative of own Directors is partner
10. Any Firm in which any relative of Holding Company’s Directors is partner
|185(2)||Company may give loan (including any loan represented by a book debt)/guarantee/security to:|
Conditions to be followed:
1. S.R. to be passed
2. The Explanatory Statement shall include:
(a) full particulars of loan/Guarantee/Security.
(b) Purpose for which such loan/Guarantee/Security will be utilised.
(c) Any other relevant fact(if any)
3. The loans must be utilised by the borrowing company for its principal
1. Any private Company in which own Director is a Director
2. Any private Company in which own Director is a Member
3. Any Body Corporate whose 25% equity shares are exercised by own director(alone or together with all Directors)
4. Any Body Corporate whose 25% equity shares are controlled by own director(alone or together with all Directors)
5. Any Body Corporate whose
(a) Board of Directors or
(b) Managing Director or
is accustomed to act in accordance with the directions or instructions of
(a) Board of own Company or
(b) Any Director or Directors of the own Company
|185(3)||BIG EXCEPTION OF 185(1) & (2)|
Means Section 185 (1) and (2) will not be applicable if :
|1. If the loan has been given to :|
(either as conditions of service extended by the company to all its employees OR pursuant to any scheme approved by the members by a special resolution)
2. If loan/Guarantee/Security has been provided ordinary course of its business subject to interest is at a rate of minimum prevailing yield of one year, three year, five year or ten year Government security closest to the tenor of the loan.
3. Any loan/Guarantee/Security by a holding Company to its wholly owned subsidiary Company and the loans are utilised by the subsidiary company for its principal business activities.(ANY LOAN).
4. Any Guarantee/Security by a holding Company in respect of loan given by any Bank/Financial Institution to its subsidiary Company and the loans are utilised by the subsidiary company for its principal business activities. (ONLY BANK/FI LOAN)
If any loan is given in the contravention:
|1. Penalty on Company === Fine Min. 5 Lac/Max. 25 Lac|
2. Penalty on the directors or the other person to whom any loan is advanced or guarantee or security is given ==== Imprisonment Max. 6 months OR Fine Min. 5 Lac/Max. 25 Lac OR BOTH
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the author are personal views and the author does not take responsibility of the same and this cannot used to be quoted before any authority.