Section 185:- This primarily deals with the subject of person to whom company cannot give loan.

 

Section 186:- This section enlists the exceptions and specifies the limits up to which a company can give loan.

 

The section 185 of CA, 2013, restrict the company on giving loans, guarantee or provide security to Directors or any other person in whom Director is interested.

The ways via which a director can be interested has been covered via 5 inclusions:-

 

Point 1 & 2

The inclusion in point 1 and 2 covers the Director and his relatives too.

It Says

1) Any Director of Lending Company.

2) Any Relative of Director.

3) Director of a Company which is its holding company.

4) Any firm in which such director is partner or relative is a partner.

5) Any partner of such Director.

 

Point 3, 4 & 5

The inclusion in point 3,4 & 5 only include Director but not his relatives.

It Says

1) Any PRIVATE Limited company in which such director is a Director or member.

2) Body corporate in which such Director or Directors hold more than 25% shares.

3) Body Corporate, MD, BOD or manager accustomed to act in accordance with direction of board or Director of lending company.

A body corporate does not include a co-operative society. But it includes a foreign company.

 

EXCEPTION TO SECTION 185

1) WD/WTD

 

a) As a part of service extended to all of its employee.

b) Any Scheme Approved by members by special resolution.

 

2) Given in ordinary Course of Business

How to check ordinary Course

a) Is the company engaged in lending activity regularly.

b) Lend not only to Directors and related parties but also to Arm Length Parties or unrelated parties.

 

   

 

 

 

 

SECTION 186

Specified transactions are covered under the Section

 

a) Loans to any person or other body corporate;

b) Guarantee or security given in connection with a loan to any other body corporate or person; and

 

c) Acquisition by way of subscription, purchase or otherwise, the securities of any other body corporate.

 

LIMITS UPTO WHICH LOAN CAN BE GIVEN

 

Higher of A) 60 % of (Share Capital + Free Reserves + Security Premium); or

 

B) 100% of (Free Reserves + Security Premium) However, if company wishes to invest or give loan to a amount higher than the above then a prior approval of Shareholders is required.

Also shareholders cannot give blanket permission.

 

 

Print