CS. Varun Kapoor

CS Varun KapoorLAW ON TAKING:

The Companies Act, 2013 restricts the taking or accepting of loan by a Company from its directors, relatives of Directors and other persons. It is pertinent to note that the exemption notification which is applicable only to Private Companies issued by Ministry of Corporate Affairs on dated 05th June, 2015 and deposit exemption notification issued on dated 15th September, 2015. The extracts of the Section 73 and notifications has been gathered in tabular manner which is time effective and in order to provide the valuable and ready reckon knowledge to the readers. Hope you may find it suitable:

1. Whether the Companies can take or accept loan from Directors, Relatives of Directors and Shareholders under Companies Act, 2013?

Persons Private Companies Conditions Public Companies Conditions
Directors Yes up to *Net Worth without passing Special Resolution Subject to such **declaration Yes up to Net Worth without passing Special Resolution Subject to such declaration
Relatives of Director Yes up to Net Worth without passing Special Resolution w.e.f. 15.09.2015 Subject to such declaration No, prohibited by Section 73(2) without complying the deposits provisions stipulated therein. Stipulated under section 73 which includes Issuance of Circular, Creation of DRR A/c, Deposit Insurance etc.
Shareholders/Members Yes up to Net Worth only w.e.f. 05.06.2015 without complying Section 73(2). The details of money borrowed shall be filed with ROC                 AND          Subject to such declaration. No, prohibited by Section 73(2) without complying the deposits provisions stipulated therein. Stipulated under section 73 which includes Issuance of Circular, Creation of DRR A/c, Deposit Insurance etc.

Construction of Meaning:

*”Net Worth” shall mean aggregate of paid up share capital and free reserves.

**“Declaration” shall mean the declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others.

LAW ON GIVING:

2. Whether the Companies can give Loan to Directors, Relatives of Directors and Shareholders under Companies Act, 2013?

The Companies Act, 2013 restricts the giving of loan by a Company to its directors, relatives of Directors and other persons or entities in which directors of the Company are interested. It is pertinent to note that the exemption notification which is applicable only to Private Companies issued by Ministry of Corporate Affairs on dated 05th June, 2015. The extracts of the Section 185 and the notification has been gathered in tabular manner which is time effective in order to provide the valuable and ready reckon knowledge to the readers. Hope you may find it suitable:

Persons Private Companies Conditions Public Companies Conditions
Directors Yes up to *Net Worth without passing Special Resolution w.e.f 05.06.2015 1. No other body corporate has invested any money

2. Borrowings- Secured or Unsecured, are less than:  the twice of Paid up share capital or Rs. 50 Crore Whichever is Less

AND

3. Company has not made any default in repayment of such borrowings subsisting  at the time of making the transactions.

No N.A.
Managing Director/ Whole-time Director Yes up to Net Worth without passing Special Resolution w.e.f 05.06.2015 1. No other body corporate has invested any money

2. Borrowings- Secured or Unsecured, are less than:  the twice of Paid up share capital or  Rs. 50 Crore Whichever is Less

AND

3. Company has not made any default in repayment of such borrowings subsisting at the time of making the transactions.

OR

(i) as a part of the conditions of service extended by the company to all its employees; or

(ii) pursuant to any scheme approved by the members by a special resolution;

Yes (i) as a part of the conditions of service extended by the company to all its employees; or

(ii) pursuant to any scheme approved by the members by a special resolution; or

Interested Persons ( See Explanation to Sub-section (1) of Section 185 Yes up to Net Worth without passing Special Resolution w.e.f 05.06.2015 1. No other body corporate has invested any money

2. Borrowings- Secured or Unsecured, are less than:  the twice of Paid up share capital or  Rs. 50 Crore Whichever is Less

AND

3. Company has not made any default in repayment of such borrowings subsisting  at the time of making the transactions.

No N.A.
Shareholders/Members Yes, up to Net Worth without passing Special Resolution, but the same will be treated as Deemed Dividend u/s 2(22) (e) of Income Tax Act. Also, it will be taxable in the hands of shareholder under section 56.( Here I assume that shareholder holds more than 10% in the Company) N.A. Yes, subject to the compliance of Section 185 and 186, up to Net Worth without passing Special Resolution, but the same will be treated as Deemed Dividend u/s 2(22) (e) of Income Tax Act. Also, it will be taxable in the hands of shareholder under section 56.( Here I assume that shareholder holds more than 10% in the Company) N.A.

Note:

The Company which in the ordinary course of its business provides loans or gives guarantees or securities and the Company charges interest at a rate not less than the bank rate declared by RBI may provide such loan without the compliance of Section 185 of the Companies Act, 2013.

Loan given by a holding Company to its Wholly Owned Subsidiary, provided the money is utilised by the subsidiary for its principle business activity may provide such loan without the compliance of Section 185 of the Companies Act, 2013.

Construction of Meaning:

Net Worth” shall mean aggregate of paid up share capital and free reserves.

Disclaimer:  This article contains interpretation of the Act, Rules, Regulations, Notifications issued and personal views of the author are based on such interpretation. Readers are advised either to cross check the views of the author with the Act or seek the expert’s views if they want to rely on contents of this article. I assume no responsibility therefore. This is only a knowledge sharing initiative and author has no intention to solicit any business or profession.

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Tags : Companies Act (2035) Companies Act 2013 (1807)

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