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Understanding sec 188 of companies Act, 2013 with simple flowchart

Sec 188 of Companies Act, 2013 is applicable from 1st April, 2014. Due to its complicated enactment & Rules thereof, many a times students as well as professionals in industry & practice finds it difficult to get a crystal clear idea regarding its applicability, implementation, effect and compliance.
CA Akash Agarwal

Sec 188 made easy for CA, CS and other students: Understanding sec 188 of companies Act, 2013 with simple flowchart.

Sec 188 of Companies Act, 2013 is applicable from 1st April, 2014. Due to its complicated enactment & Rules thereof, many a times students as well as professionals in industry & practice finds it difficult to get a crystal clear idea regarding its applicability, implementation, effect and compliance.

In an attempt to make it clear, I would like to present this simple simple flowchart-

Categories: Company Law

View Comments (6)

  • Sir,
    I have a query related sec-188.
    Mr. X is a common Director in AB Pvt. Ltd. and CD Pvt. Ltd. (NBFC). Here AB Pvt. Ltd. borrowed unsecured loan from CD pvt. ltd.(NBFC) @ 12% rate of interest for the F.Y -2014-2015.
    My Query is - in this case Sec-188 apply??? firstly Mr. x is a common director and rest 2 directors are relatives of Mr. X and 2ndly as per section 188(1)(d) -Availing / rendering services -its includes borrowing and providing Loan ????

  • Dear Sunita Ji, section 188 shall not applicable in your case as that does not come under prescribed transactions rather section 185 shall be applicable in your case as one company giving loan to another company having same director....

  • Dear Mohit ji,
    Thanks for your reply.
    sir as per my knowledge, section 185 shall not applicable to borrwing co.Its applicable to lending co. But in my case lending co. is a NBFC (& its main object is to provide loan)and it is exempt ryt ????Pls correct me if am wrong.

  • Sir,
    I seek one clarification
    The OPP limit is 2.5 lac pm and what if it exceeds for appointment of a related party in a wholly owned subsidiary or subsidiaries, whose accounts are consolidated with the parent co? Does the company need to pass resolution in Board and AGM?
    As per the latest amendment by MCA for all RPT between the parent and wos is exempted from sec. 188.

    Kindly advise on this point.

    regards,

    Udayakumar

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