1. Objective of Section 185 of Companies Act, 2013:- In order to prevent Directors and their related persons to derive out the funds of the company by way of presenting loan with an intention to not to repay such amount subsequently. Hence that loan becomes non performing asset for the company.
2. Legal Provisions of Section 185 of Companies Act, 2013:-
Please Note- The exception regarding Managing Director (MD)/ Whole Time Director in below table in point no. 4 is only for loans. Guarantee & Security is not allowed.
Please Note- The exception regarding Managing Director (MD)/ Whole Time Director in above table in point no. 4 is only for loans. Guarantee & Security is not allowed.
| Exemptions of Section 185 | |
| S No. | Situations |
| 1. | Government Company– Approval of concerned government department is required |
| 2. | Private Company, on following conditions:- > No Body Corporate has invested any money in paid up share capital of the private company; > Borrowing of the private company shall not exceed twice the paid up share capital or Rs. 50 Crore, whichever is lower and > No subsisting default of repayment of borrowings |
| 3. | Nidhi Company, on following conditions:- > Loan given to Director or his relative (in capacity of member) + Disclosure in Annual Accounts |
–
| Procedure to give Loan, Guarantee or Security in connection to loan | |
| Step 1 | Board Resolution(in Board Meeting) > To grant Loan, Guarantee or Security to Directors or related persons > To approve Notice of General Meeting, Date , Time and venue of the meeting > To authorise Director or CS to implement necessary acts so required Notice of General Meeting shall include- > Particulars of Loan, Guarantee or Security > Explanatory statement u/s 102 |
| Step 2 | Special Resolution(in General Meeting) for approval of Shareholders |
| Step 3 | File MGT-14within 30 days of General Meeting, with following attachments: > CTC of SR > Consent of Shorter notice (if applicable) |
–
| Other Provisions | |
| Maintaining Registers of Loans, Guarantee and Security | Form MBP-2 |
| Penalty | > Company:- Fine of Rs. 5 lacs to Rs. 25 lacs > Every Officer in default:- Imprisonment up to 6 months or with fine of Rs. 5 lacs or up to Rs. 25 lacs > Director or person to whom the loan is granted or guarantee or security is provided : Imprisonment up to 6 months or with fine of Rs. 5 lacs or up to Rs. 25 lacs or with both |
Author Bio
The exception regardings MD/WTD as stated in table 2 point no. 4 is only for loans. Guarantee & Security is not allowed.
Very well explained. Nice & informative bhai
Very informative article.