Section 185 of Companies Act 2013, prohibited companies from advancing any loan (including loan represented by a book debt) or giving any guarantee or any security in connection with a loan taken by the directors of such company or any other person in whom the directors are interested.
Article contains Checklist of section 185 of Companies Act 2013
| Checklist of section 185 of companies act, 2013 | |
| PARTICULARS | COMPLIANCE |
| Prohibitive list | |
| Check Whether, No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by | A) To Its Directors
B) To Relative of Directors C) To the Directors of its Holding Company D) To the partner of the firm in which Director is a Partner E) To the Partnership Firm in which its director or its Holding Company is a Partner |
| Restrictive list | |
| A company may advance any loan including any loan represented by a book debt, or give any guarantee or provide any security in connection with any loan taken by any person in whom any of *(the director of the company is interested )subject to the following conditions: | A) AOA contains power.
B) Board resolution at board meeting. C) must contain the agenda of the board meeting. D) Approval of shareholder by way of special resolution. E) Explanatory statement shall :- (i) disclose the full particulars of the loans given, or guarantee given or security provided and (ii) the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security and any other relevant fact. F)the loans are utilised by the borrowing company for its principal business activities. |
| Unrestricted list | |
| Loan to MD/WTD | A) Board resolution at board meeting.
B) Must contain the agenda of the board meeting C) As conditions of service extended to all its employees D) Pursuant to a scheme approved by Special Resolution |
| Companies providing Loan ,Guarantee, Security in their ordinary course of business | A) Board resolution at board meeting.
B) Must contain the agenda of the board meeting C)Where interest charged not less than prevailing yield of Govt. securities of 1 year, 3 year, 5 year or 10 year |
| Loan, Guarantee Security provided by Holding Company to WOS | A) Board resolution at board meeting
B) Must contain the agenda of the board meeting C) For principal business activities |
| Guarantee or security provided by holding to its subsidiary | A) Board resolution at board meeting.
B) Must contain the agenda of the board meeting C)For principal business activities |
| NOTES TO CHECKLIST | |
| The expression “any person in whom any of the director of the company is interested” means—
(a) any private company of which any such director is a director or member; (b) any body corporate at a general meeting of which not less than twenty-five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or (c) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company. |
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| EXEMPTION to some companies from above section if following conditions are satisfied :- | |
| PRIVATE COMPANIES | Which satisfies all three conditions: –
1. No investment has been done by any body corporate 2. Borrowing from banks/ FIs/ body corporate is less than lower of : Twice of paid up capital OR Fifty crore rupees 3. It has no default in repayment of borrowings subsisting at the time of transaction. |
| GOVERNMENT COMPANIES
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Which satisfies both conditions: |
| 1. obtains approval from ministry administratively in charge of the company/ SG before making any LGS | |
| 2.Which has not defaulted in filing financial statements and annual return with the registrar | |
| NIDHI COMPANIES | While granting loan to director/ relative in their capacity as members AND Such transaction is disclosed in the annual accounts |
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