Loans & advances Under companies act, 2013 To director or company in which director is interested Sec 185 To any other Companies Sec 186

Sec 185 as per the companies act,2013 & circular by MCA (dated ) No company → shall Directly or Indirectly Any of its Director Person in whom director is interested  Advance any loan (including book debt)  Or Give any guarantee  Or Provide any security to

Person in whom director is interested ☻☻☻☺☺☺  Director of lending co. or Director of holding co. or any partner or relative of any such director,  Any firm in which any such director or relative is a partner,  Any private co. of which any such director is a director or member,  Any body corporate of which any such director or directors having ≥25% of total voting power,  Any body corporate if its BOD, MD or manager act as per direction of board or of any of director, of lending company.

Exception of sec 185 Loan to MD or WTD If as per part of condition of service to all employees or approved by members by SR L/G/S by co. in ordinary course of business Interest rate ≥ bank rate L/ G/S by holding co. to wholly owned subsidiary Co. (WOSC) loan is utilized for its (WOSC) Principle business activities

PENALTY (if noncompliance with sec185)  Company- Fine ≥ 5lakh up to 25 lakh rupees Fine ≥ 5lakh up to 25 lakh rupees  Director or other person Imprisonment – up to 6 months or or Fine ≥ 5 lakh up to 25 lakh rupees or or both both

PRACTICAL SOLUTION OF SEC 185  Convert borrower company to limited company (if common director hold <25% of borrowing company)  Convert lender & borrower to LLP  Change in directorship, shareholding

LOANS AND INVESTMENT BY COMPANY [SECTION 186]

SECTION 186(1) NO INVESTMENT THROUGH MORE THAN 2 LAYERS OF INVESTMENT COMPANIES. SECTION 186(1) SEC186(1) Shall not have effect – (i) if a co. acquires any co. which is incorporated outside India and such co. has investment subsidiaries beyond two layers as per law of such country. (ii) A subsidiary co. from having any investment subsidiary for meeting requirement under any law.

SECTION 186(2) No company shall directly or indirectly- Give loan to any person or body corporate, Give guarantee or provide security in connection with loan to any other body corporate or person and Acquire by way of subscription, purchase, securities of any other body corporate 60% of paid up capital 100% of free reserve +free reserve or +securities + securities premium premium Exceeding -

APPROVAL FROM MEMBERS SECTION 186(3) If loan or guarantee or security or acquisition exceeds the limits specified in sec 186(2), then prior approval of members by special resolution at general meeting shall be necessary. If loan or guarantee or security or acquisition exceeds the limits specified in sec 186(2), then prior approval of members by special resolution at general meeting shall be necessary.

Approval of board and public financial institution[sec186(5)]  Every company shall take consent of all the directors present at board meeting before making LGS  In case of company has already taken loan from any public financial institution then it is mandatory to take prior approval from such public financial institution. EXCEPTION – EXCEPTION – i.e. prior approval of PFI shall not required- i.e. prior approval of PFI shall not required-  LGS is within the limits as specified under sec186(2)  No default in repayment of loan installments or interest.

NON APPLICABILITY OF SEC186 Nothing contain in sec186, except sec186(1), shall apply- (a) To LGS provided by a banking co. or an insurance co. or an insurance co. or a housing finance co. or a housing finance co. or co. engaged in business of financing of companies or of providing infrastructural facilities. or co. engaged in business of financing of companies or of providing infrastructural facilities. (b) To any acquisition – Made by NBFC registered under RBI Made by NBFC registered under RBI Made by co. whose principal business is acquisition of securities Made by co. whose principal business is acquisition of securities Shares allotted in section62(1) Shares allotted in section62(1)

PENALTY FOR CONTRAVENTION OF SECTION186 FOR COMPANY Fine- >Rs Up to Rs 5,00,000 FOR OFFICERS- Imprisonment- up to 2 years Fine- >Rs up to Rs 1,00,000

THANK YOU ☻☺☻ CS MONIKA AGARWAL[CA(FINAL) STUDENT] CRO