Brief Analysis of major sections i.e. Sec 185, 186 & 188 of Companies Act 2013 along with recent changes in Companies act 2013

1. Brief Overview on Major
Sections of Companies Act
2013
• Section 185-Loans to Directors
• Section 186-Loans and Investments
• Section 188- Related party Transactions
• Annual Forms under Companies Act 2013
• Recent changes in Companies Act 2013
• Key takeaways from Budget 2021 on Companies Act 2013

2. SECTION 185 – LOANS TO DIRECTORS

3. What is loan represented by Book
Debt?
Any book debt in the books of the
company, in the name of any Director or
any other person in whom the Director is
interested will be treated as a loan.
For Example, a petrol company or ice cream
company sells to director even on market price and
collects the money once a month for sales made on
daily basis to the director, there will be
outstanding in the books of the company on 29th or
30th day assuming the director is disciplined
person who clears the debt on dotted date is also
restricted.

4. QUICK SNAPSHOT

5. ILLUSTRATIONS

8. PERSON IN WHOM DIRECTOR IS INTERESTED
any private company of which any such director is a director or member
any body corporate at a general meeting of which not less than twenty five per cent
of the total voting power may be exercised or controlled by any such director, or by
two or more such directors, together
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

11. EXEMPTIONS PROVIDED

12. NON COMPLIANCE UNDER SECTION 185
Company shall be
punishable with a fine.
• Minimum-5 lakhs
• Maximum-25 lakhs
Every officer shall be
punishable
• Imprisonment- 6 months; or
• Fine-Minimum-5 lakh
• Maximum-25 lakh; or
• Both
Director or other person whom the
loan/guarantee/security is
provided:
• Imprisonment-6 months; or
• Fine-Minimum-5lakh
• Maximum-25lakh; or
• Both

13. SECTION 186 – LOANS AND INVESTMENTS BY
COMPANIES- QUICK SNAPSHOT
The word "person"
does not include any
individual who is in
the employment of
the company.

14. RELAXATIONS
 Prior Special resolution is required in case the aggregate of the loans and
investment so far made, along with the investment, loan, guarantee or security
proposed to be made, exceeds the limits given above.

15. “investment company”
- a company whose principal business
is the acquisition of shares,
debentures or other securities

17.  No loan shall be given at a rate of interest lower than
the prevailing yield of one year, three year, five year or ten year
Government Security
 Full details of the loan, investment , guarantee or security as
the case shall be given in financial statements.
 Intermediaries registered u/s 12 of SEBI Act shall not take inter-
corporate loans and deposits in excess of the limits prescribed
 Company shall maintain register in Form MBP-2 either physically
or in electronic mode
 Companies in default of repayment of deposits shall not give or
make Loans, Security or Guarantee till the default subsists.
OTHER IMPORTANT POINTS

18. EXEMPTIONS PROVIDED
Loan, Guarantee, Security,
investment made by
Investments made
• Banking Company
• Insurance Company
• Housing Finance Company
• a company which is established with the
object of and engaged in the business of
financing industrial enterprises
• a company which is established with the
object of and engaged in the business of
providing infrastructure facility
• By an Investment Company
• Under Right Issue u/s 62(1)(a)
• Rights issue by any Body Corporate
• NBFC whose principal business is acquisition
of securities
• Investment made in respect of lending or
investment activities

19. NON COMPLIANCE UNDER SECTION 186
Company shall be
punishable with a fine.
• Minimum-25 Thousands
• Maximum-5 lakhs
Every officer shall be
punishable
• Imprisonment- 2 years; or
• Fine-Minimum-25 Thousand
• Maximum- 1 lakh

20. “Office or place of profit” means if the director
holding it receives from the company anything
by way of remuneration over and above the
remuneration to which he is entitled as director.

21. Who all are Related Parties?
• Director or KMP or relative thereof
• Director or KMPs of the Holding Company or his relative
• Firm, in which a director, manager or his relative is a partner
• Private company in which a director or manager or his relative is a member or director
• Public company in which a director or manager is a director and holds along with his
relatives, more than 2% of its paid-up share capital
• any body corporate whose Board of Directors, managing director or manager is accustomed
to act in accordance with the advice, directions or instructions of a director or manager
• any person on whose advice, directions or instructions a director or manager is accustomed
to act
• any body corporate which is—
(A) a holding, subsidiary or an associate company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary

22. Important Points
No member of the company shall vote on such resolution, to
approve any contract or arrangement which may be entered into by
the company, if such member is a related party.
In case of wholly owned subsidiary, the resolution passed by the
holding company shall be sufficient for the purpose of entering into
the transaction between the wholly owned subsidiary and the
holding company.

24. WHEN MEMBERS’ APPROVAL IS REQUIRED?
(g) underwriting the subscription of
any securities or derivatives
thereof, of the company-Exceeding
1% of Net worth
(f) such related party's appointment
to any office or place of profit in the
company, its subsidiary company or
associate company-monthly
remuneration exceeding two and a
half lakh rupees
a) sale, purchase or
supply of any goods or
materials- 10% or
more of turnover of
Company
(d) availing or
rendering of any
services- 10% or more
of turnover of
Company
(b) selling or otherwise
disposing of, or buying,
property of any kind-
10% or more of
turnover of Company
(e) appointment of
any agent for
purchase or sale of
goods, materials,
services or property
(c) leasing of property
of any kind- 10% or more
of turnover of Company
The said limits shall apply for
transactions entered individually or
taken together with previous
transactions during a F.Y.
The turnover or net
worth shall be
computed on the basis
of the audited
financial statement of
the preceding F.Y.

25. EXEMPTIONS TO SECTION 188
If the transactions are entered into between a holding company and its wholly owned subsidiary
whose accounts are consolidated with such holding company and placed before the shareholders at
the general meeting for approval.
Exemption to Board Approval
Exemption to members’ Approval

27. Disclosure in Board
Report is also
required in Form
AOC-2

28. NON COMPLIANCE UNDER SECTION 188
If entered into a contract in violation of the
provisions of the section
Director/Employee of a
Listed Company shall be
punishable
• Imprisonment- 1 years; or
with a fine.
• Minimum-25 Thousands
• Maximum-5 lakhs or both
Director/Employee of a any
other Company shall be
punishable with fine
• Minimum-25 Thousands
• Maximum-5 lakhs

29. FORMS UNDER COMPANIES ACT 2013
TYPE OF FORMS PURPOSE FREQUENCY DUE DATE
Form DIR-3 KYC KYC of Directors Annually 30 April
Form DPT-3 Return of Deposits Annually 30 June
Form MSME-1 Return in respect of
outstanding payments to
Micro or Small Enterprise.
Half-Yearly • 30 April
• 30 October
Form AOC-4/AOC-4
CFS/AOC-4 XBRL
Financial Statements Annually Within 30 days of AGM
Form MGT-7 Annual return Annually Within 60 days of AGM
Form ADT-1 Appointment of Auditors Event Based Within 15 days of Event
Form ADT-3 Resignation of Auditors Event Based Within 30 days of Event
Form DIR-12 Change in Directors Event Based Within 30 days of Event
Form PAS-3 Return of Allotment Event Based Within 30 days of Event
Form MGT-14 Specific Event Based Within 30 days of Event

30. OTHER AMENDMENTS AS PER COMPANIES AMENDMENT ACT
2020
 Amendment of Section 62 (further issue of share capital)- Offer for the further issue of a
company's shares can be open for less than 15 days.
 Amendment of Section 89 (declaration in respect of beneficial interest in a company's shares)
The central government can, if it is necessary for the public interest, issue notification to exempt
any class or classes of persons from complying with Section 89.
 Amendment of Section 135 (corporate social responsibility)
If a company spends more during a financial year than the amount required to be spent for
corporate social responsibility under the Companies Act 2013, the excess amount that has been
spent can be offset against the amount required to be spent for the succeeding financial
years.
 Insertion of Section 129A (periodical financial results)
Central government may specify that certain classes of unlisted company must prepare periodical
financial statements for specified periods along with the manner of the audit or limited review
thereof by the board of directors and its filing with the registrar.

31. KEY TAKEAWAYS FROM BUDGET 2021 ON
COMPANIES ACT 2013
 Decriminalization of the Limited Liability Partnership (LLP) Act, 2008
 Definition of small companies to be raised by increasing the capital limit from Rs 50 lakh to Rs 2 crore and
turnover from Rs 2 crore to Rs. 20 crores
 Promoting start-ups and innovators by incentivizing the incorporation of One Person Companies (OPCs) by
Allowing Non Resident Indians (NRIs) to incorporate OPCs in India.
 Allowing their conversion into any other type of company at any time, without any restrictions on paid up
capital and turnover
 Reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and
 To ensure faster resolution of cases by:
 Strengthening NCLT framework
 Implementation of e-Courts system
 Govt. to consolidate SEBI Act, 1992, Depositories Act, 1996 and SCRA into a single Securities Market
Code18.
 FDI in the Insurance sector to be increased from 49% to 74% with foreign control but with safeguards
 Launch of data analytics, artificial intelligence, machine learning driven MCA21 Version 3.0 in 2021-22

32. THANK YOU