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:-

Legal ProvisionsPlease 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.

Section 185 (2)‐ A company may give loan (including book debts), guarantee or security in connection with the loan to following persons 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-14  within 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

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Qualification: CS
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Location: New Delhi, New Delhi, IN
Member Since: 27 May 2020 | Total Posts: 2

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4 Comments

  1. Bilal Chauhan says:

    The exception regardings MD/WTD as stated in table 2 point no. 4 is only for loans. Guarantee & Security is not allowed.

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