Loans to Directors & Inter Corporate Loans Companies Act 2013

1. Loan to Directors &
Inter Corporate Loans

2. Companies Act 1956
 Section 295 – Loan to Directors
- Applicability
 Public Ltd
 Pvt Ltd which is subsidiary of Public Ltd.
 Shall not apply
 Banking Company
 Private Ltd Co. which is not a subsidiary of Public Co.
 Any loan/guarantee by a holding Company to its
Subsidiary
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3. Companies Act 1956
 Section 295 – Loan to Directors
- no company without obtaining the previous approval of the CG,
shall directly or indirectly,
make any loan to, or give any guarantee or provide any security in connection
with a loan made by any other person to, or to any other person by
-any director of the lending company and its 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 in which such director/s have 25 % or more voting power
- any body corporate, the Board of directors, managing director or manager
whereof is accustomed to act in accordance with the directions or
instructions of the Board, or of any director or directors, of the lending
company
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4. Companies Act 2013
 Section 185 – Loan to Directors
- Applicability
 Both Private Ltd Co & Public Ltd Co.
 Shall not apply to
 A company which is in to lending business (Ex: Bank/NBFC)
 Loan given to MD/WTD as per the scheme approved by shareholder by
special resolution/ as per the terms of service which is applicable to all
the employees.
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5. Companies Act 2013
 Section 185 – Loan to Directors
- No company shall directly or indirectly, advance any loan
to any of its directors or to any other person in whom director is interested
or give any guarantee or provide any security in connection with any loan
loan taken by him or any other person.
‘’any other person in whom director is interested’’ means
-any director of the lending company or its 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 in which such director/s have 25 % or more voting power
- any body corporate, the Board of directors, managing director or manager
whereof is accustomed to act in accordance with the directions or instructions
of the Board, or of any director or directors, of the lending company
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6. Companies Act 1956 & 2013
 Penalties Section 295 of
Companies Act 1956
Section 185 of
Companies Act 2013
For Company
Up to fifty thousand
Minimum – Rs.5 lacs
Maximum – Rs.25 lacs
For Directors
Up to fifty thousand
Minimum – Rs.5 lacs
Or
Maximum – Rs.25 lacs
Imprisonment up to 6 months Or
Imprisonment up to 6 months
Or
Both
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7. Companies Act 2013
 Loan to Directors – Q & A

ABC Pvt Ltd pays Travel advance of Rs.10,000 to Mr. X – Director

ABC Pvt Ltd is holding Company of XYZ Pvt ltd. XYZ Pvt ltd gives a loan to
one of the Director of ABC Pvt Ltd. (directors of the both the company are
not relatives)

ABC Pvt Ltd is holding Company of XYZ Pvt ltd. ABC Pvt ltd gives a loan
to one of the Director of XYZ Pvt Ltd. (directors of the both the company
are not relatives ).

ABC Pvt Ltd is holding Company of XYZ Pvt ltd. XYZ Pvt ltd gives a
guarantee for loan taken by one of the Director of ABC Ltd. (directors of
the both the company are not relatives)

ABC Pvt Ltd gives a loan to a Registered Co-operative Society in which one
of the director of ABC Pvt Ltd holds 9 % Share holding.

Director of ABC Pvt Ltd has given a loan to Mr.X (who is not relative of
Director). ABC Pvt Ltd has given a guarantee to the Director against that
loan
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8. Companies Act 1956
 Section 372A – Inter- Corporate Loans & Advances
Scope of Section 372A
Section 372A is attracted in following cases
 Company makes a loan to any other body corporate
 Company acquires the securities of any other body corporate
 Company gives any guarantee or provides security to
- any person who gives loans to any body corporate or
- a body corporate which gives loan to any other person.
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9. Companies Act 1956
 Section 372A – Inter- Corporate Loans & Advances
 Section 372A – Shall not apply in following cases
 Banking Company
 Insurance Company
 Housing Finance Company
 Investment Company
 Company established with object of financing industrial
enterprises/infrastructure facilities
 Private Company unless it is subsidiary of public co
 Any loan/guarantee/security/investment made by holding Co.
in its Wholly owned subsidiary Co.
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10. Companies Act 1956
 Section 372A – Inter- Corporate Loans & Advances
 Section 372A - Approval Process
 Board Approval is enough if aggregate of loans, guarantee &
investments so far made and to be made does exceed the
ceiling limit, i.e.
 60% of Paid up capital & free reserves or
 100 % free reserves, whichever is more.
 If it exceeds ceiling limit, approval of shareholders is
required by way special resolution
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11. Companies Act 1956
 Section 372A – Inter- Corporate Loans & Advances
 Section 372A - Other terms & Conditions
 If any default under section 58A subsists same should be
made good
 In case company has taken loan from Public financial
Institution (PFI) , Prior approval of PFI required if transactions
exceeds 60 % of PC+free Reserves or
if there is default in repayment of Loan taken from PFI
 In case Company gives a loan, the rate of interest shall not be
less than the prevailing bank Rate
 Register to be maintained for Loan given/ Investment made/
Security or Guarantee given
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12. Companies Act 2013
 Section 186 – Inter- Corporate Loans & Advances
(Yet to be notified)
Scope of Section 186
Section 186 is attracted in following cases
 Company makes a loan to any other body corporate
 Company acquires the securities of any other body corporate
 Company gives any guarantee or provides security to
- any person who gives loans to any body corporate or
a body corporate which gives loan to any other person.
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13. Companies Act 2013
 Section 186 – Inter- Corporate Loans & Advances
 Section 186 – Shall not apply in following cases
 Banking Company
 Insurance Company
 Hosing Finance Company
 Investment Company
 Company established with object of financing Infrastructural
facilities
 NBFC’s
Deleted
1. Private Company
2. Holding Co & its wholly owned subsidiary Co transactions
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14. Companies Act 1956
 Section 186 – Inter- Corporate Loans & Advances
 Section 186 - Approval Process
 Board Approval is enough if aggregate of loans, guarantee &
investments so far made and to be made does exceed the
ceiling limit, i.e.
 60% of Paid up capital & Reserves or
 100 % free reserves, whichever is more.
 If it exceeds ceiling limit, approval of shareholders is
required by way special resolution
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15. Companies Act 2013
 Section 186 – Inter- Corporate Loans & Advances
 Section 186 - Other terms & Conditions
 If any default under section 58A subsist same should be made
good
 In case company has taken loan of Public financial Institution
(PFI) , Prior approval of PFI required if transactions
exceeds the ceiling limit or
if there is default in repayment of Loan taken from PFI
 In case Company gives a loan, the rate of interest shall not be
less than the yield of Government security
 Register to be maintained for Loan given/ Investment
made/Security or Guarantee given
 Shall disclose full particulars in financial statements
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16. Companies Act 2013
 Section 186 – Inter- Corporate Loans & Advances
 Section 186 - Other terms & Conditions - Contnd
 Company can not make investment through not more than two
layers of Investment Companies unless
 there is a regulatory requirement or
 if the investment is outside India for acquiring a company
which has already two layers of investment subsidiaries
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17. Companies Act 1956 & 2013
 Penalties Section 372A of Companies
Act 1956
Section 186 of Companies Act
2013
For Company
Up to fifty thousand
Minimum – Rs.25,000
Maximum – Rs.5 lacs
For every
officer
Up to fifty thousand
Or
Imprisonment up to two
years
Minimum – Rs.25,000
Maximum – Rs.1 lacs
and
Imprisonment up to Two Years
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18. Companies Act 2013
 Loan to Directors – Q & A

ABC Pvt Ltd has given a interest free loan its subsidiary

100 % free reserves (for the ceiling limit) is arrived considering Share
Application Money, Debenture Redemption reserve, Equity Share Premium
and Preference share Premium
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19. Thank you
CA. Vishwas Shetty T
Contact:
+91-9845488489
cavishwas@bvcglobal.com
Add : No.371, First Floor, 8th Main Sadashivanagar, Bangalore
31/01/2014
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