Financial Transactions
Under the Companies Act, 2013
Financial Transactions
Under the Companies Act, 2013
Capital Nature
Transactions
Revenue Transactions
Capital
issues
Loans
Debentures
Guarantees
Borrowings
Investments
ECBs
Deposits
Related Party
Transactions
Commercial
Transactions
Auditors
Engagements /
Services
Non Related Party
Transactions
Dividends
Managerial
Remuneration
Financial Transactions – General
 Check the Object Clause of the Memorandum of Association
 Impact of activities ultra virus to the provisions of the Memorandum of
Association
 Personal Liability of Directors
 Transactions Void / Voidable
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 Action against the Directors / the Company
Loan to Directors etc.
Section 185 of the Companies Act, 2013
Save as otherwise provided in the Act, a company is not allowed the followings,
directly or indirectly:
 Advance any loans (including book debts ); or
 Give guarantee or provide security in connection with loan
to directors or any person in whom the director is interested.
Exemptions
Loan to MD / WTD
as per company
policy or
shareholders’
approval (SR)
Ordinary course
of business where
the
interest
charged is not
less than RBI
bank rate.
Transactions with
WOS Guarantee /
security to bank
for loan to its
subsidiary.
Private
Limited
Companies subject
to
certain
conditions
Loans made to are utilized for its principal business activities
Loan to Directors etc.
Section 185 of the Companies Act, 2013
Who is the person in whom director is interested:
• Directors of the Company or its holding company, their partners and
relatives
• Firms of above directors, their relatives
• Private companies in which such directors are director or member
• Body corporates in which such directors hold more than 25% of voting rights
• Body corporates whose Board, MD, or manager are accustomed to act in
accordance with direction of board or director(s) of lending company
Loan to Directors etc.
Section 185 of the Companies Act, 2013
Exemptions to Private Limited companies
[MCA notification No. F No. 2/11/ 2014- CL V dt. June 5, 2015]
Thank You
The provisions of Chapter XII, Section 185 does not apply to Private Limited
companies satisfying following criteria:
(a) In whose share capital no other body corporate has invested any money
(b) If the borrowing of such company from bank or financial institution or any
body corporate is less than twice of its paid up share capital or Rs. 50
crores, which ever is lower
(c) Such company has no default in repayment of such borrowings subsisting
at the time of making transaction under this section
Loan to Directors etc.
Section 185 of the Companies Act, 2013
Exemptions w.r.t. Subsidiaries / Wholly owned subsidiaries
The provisions of Section 185 does not apply :
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
any loan made by a holding company to its wholly owned subsidiary
company or any guarantee given or security provided by a holding company
in respect of any loan made to its wholly owned subsidiary company; or

any guarantee given or security provided by a holding company in respect of
loan made by any bank or financial institution to its subsidiary company.
Provided that the loans made under clauses (c) and (d) are utilized by the
subsidiary company for its principal business activities.
Proviso to Sub section (1)
Inserted by the Companies (Amendment) Act, 2015
Loan to Directors etc.
Section 185 of the Companies Act, 2013
Ordinary Course of Business?
 Business is different from trade or commerce
 Relationship of the activity with the principle business activity of the
Company
 Authorisation for the activity in the MoA
 Frequency of the activity
Can a company give guarantee to a director for loan given to a third party
u/s. 185?
Only the guarantees / security in connection with Loan to a director is prohibited.
Guarantees to directors in connection with Loan to third parties is not prohibited.
Loans and Investments by a company
Section 186, 179 of the Companies Act, 2013]
Layers of Investment companies
A company shall unless otherwise prescribed, make investments through not
more than two layers of investment companies.
Investment Company means a company whose principal business is the
acquisition of shares debentures or other securities
What does the Principal Business means?
 The commercial activities undertaken by the Company
 As per object clause of the Company
 RBI’s 50:50 Asset income criteria
Loans and Investments by a company
Section 186, 179 of the Companies Act, 2013
Nature of Transactions: Loan, Investment in securities of a body corporates,
Guarantees / security in connection with loans.
Limits: Higher of 60% of the paid capital, free reserves and securities premium
or 100% of free reserves (including securities premium).
General Exemption:
• Banking Company, Insurance, Housing Finance, NBFCs, Infrastructure facility
companies (except for investments)
Exemption from Special Resolution:
• Wholly Owned Subsidiaries / Joint Venture Company.
• All other requirements e.g. minimum interest, board approval, register
maintenance etc. applicable to such companies
Loans and Investments by a company
Section 186, 179 of the Companies Act, 2013]
 Whether purchase of debentures by by a company an Investment or a Loan?
 Does the investment by a company in Mutual Funds attracts the provisions
of Section 186?
 If a company gives a sales tax surety (guarantee) for a company, does it
require compliance of Section 186?
Loans and Investments by a company
Section 186, 179 of the Companies Act, 2013]
X Limited with paid up share capital of 1000 Cr. want to give loan to its subsidiary in
which it hold 70% equity. The balance 30 % is held by a director of the Company.
 The loan has to be in the ordinary course of business since the director hold >25%
voting rights in the Company.
 Audit Committee approval under section 177 since this is a transaction with related
party.
 Compliances under Section 186
 Compliances under Section 184
Can the Board delegate its power to make investments etc. to its principle officer /
board committee under section 179?
The provisions of section 179 enable the board to generally delegate its power of
investments to the Principle officer / board committee. Since under section 186 there is
no specific provision, the Board cannot delegate its power to make investments etc. to
its committee or principle officers.
Related Party Transactions
[Section 2(76), 177, 188, Rule 15-Chapter XII,
F. No. 1/1/2014 dt.5/6/2015]
Who is a related party ?
 Directors, KMPs of the Company or its Holding company and their relatives;
 Firm in which a director, manager or his relative is a partner;
 Private company in which a director or manager is a member or director;
 Public company in which a director or manager is a director and along with
his relatives holds, two per cent or more of its paid-up share capital;
 Any person on whose advice, directions or instructions the board of director
or MD or manager is accustomed to act, except in professional capacity;
 Holding, subsidiary, fellow subsidiary associate companies or joint ventures.
(Does not apply to private limited companies)
Paid up share capital [Section (2(64) ] Vs. total share capital [Rule (2(r) of Chapter 1]
Related Party Transactions
[Section 2(76), 177, 188, Rule 15-Chapter XII,
F No. 1/1/2014 dt.5/6/2015]
Related Party under Section 2(76) is different from AS 18
Subject
Investing entity with 20% or more investment in subject
matter entity other than Holding Companies (associate
company under AS 18)
CFO and CS and their relatives
Directors’ personal interest entities
Investing entity for Joint venture
Holding, Subsidiaries, fellow subsidiaries and Associates of
Pvt. Ltd. companies
CA13
AS18
No
Yes
Yes
Yes
No
No
No
Yes
No
Yes
Related Party Transactions
[Section 2(76), 177, 188, Rule 15-Chapter XII,
F No. 1/1/2014 dt.5/6/2015]
Transactions Covered under section 188
 Sale, purchase and supply of any goods and material
 Availing or rendering of any services
 Selling or otherwise dispose off or buying property of any kind
 Appointment of any agent for purchase or sale of goods , material,
services, property
 Leasing of property of any kind
 Underwriting the subscription of any securities of the company
 Such RP appointment to any office or place of profit in the company, its
subsidiary or associate company
Related Party Transactions
[Section 2(76), 177, 188, Rule 15-Chapter XII,
F No. 1/1/2014 dt.5/6/2015]
Sale, purchase or supply of any goods and material directly or via agent
• Limit: 10% of the turnover or 100 Crore whichever is lower.
Selling, buying or disposing of property of any kind directly or via agent
• Limit: 10% of the turnover or 100 Crore whichever is lower.
Leasing of property of any kind
• Limit: 10% of the turnover or 10% of net worth or 100 Crore whichever is lower.
Availing or rendering of any services directly or via agent
• Limit: 10% of the turnover or 50 Crore whichever is lower.
RP appointment to any office or place of profit of company, subsidiary or associate
company
• Limit: Monthly remuneration of 2.5 lakh.
(Turnover/Net-worth to be taken from previous year audited Financials)Section 134(3)(q),
Rule 8(1) , 5(iv) of the Companies (Accounts) Rule 2014]
Related Party Transactions
[Section 177, 188, Rule 15-Chapter XII,
F No. 1/1/2014 dt.5/6/2015]
Related Party Transactions
A related party “transaction” is a transfer of resources, services or obligations
between a company and a related party, regardless of whether a price is charged.
Explanation: A “transaction" shall be construed to include single transaction or a
group of transactions in a contract
All material Related Party Transactions shall require approval of the shareholders
through special resolution and the related parties shall abstain from voting on
such resolutions.
Provided that a transaction with a related party shall be considered material if the
transaction / transactions to be entered into individually or taken together with
previous transactions during a financial year, exceeds ten percent of the annual
consolidated turnover of the company as per the last audited financial statements
of the Company.
Related Party Transactions
[Section 177, 188, Rule 15-Chapter XII,
F No. 1/1/2014 dt.5/6/2015]
Board Approval
• Related party + Specified transactions + within the exemption limits
specified.
Board approval + Ordinary resolution
• Related Party + Specified transactions + not falling within the exemption
limits specified.
Neither Board approval nor Ordinary resolution
• Transaction in ordinary course of business and at Arm’s length.
Approval of Audit Committee(u/s 177 of Companies Act, 2013)
• All the transactions (specified or not, in ordinary course or not, at Arm’s
length or not) with the related parties require approval of Audit
Committee.
Related Party Transactions
[Section 188, Rule 15-Chapter XII,
F No. 1/1/2014 dt.5/6/2015]
Transactions with Related Parties u/s. 177
Every Audit Committee shall act in accordance with the terms of reference
specified in writing by the Board which shall inter alia include:
(iv) Approval or any subsequent modification of transactions of the company
with related parties
Provided that the Audit Committee may make omnibus approval for the
related party transactions proposed to be entered into by the company
subject to such conditions as may be prescribed.
How should a company deal with the following transactions with related
parties?
Dividends, Managerial Remunerations, Capital issues, Loans etc.
Deposits
[Section 73-76 of the Companies Act, 2013
The Companies Acceptance of Deposit Rules 2014]

No company shall invite, accept or renew deposits under this Act from public except in
a manner provided under Chapter V of the companies Act, 2013.

Deposits includes any receipt of money by way of deposit or loan or any other form by
a company but does not include:
(a) Receipts from Government
(b) Loans / fin. assistance from banks / PFIs
(c) Commercial papers
(d) Inter corporate transactions
(d) Share application money
(e) Loan from directors
(f)
(g) Security deposits from
employees – upto 1 year salary
Secured / compulsory convertible
bonds / debentures
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(h) Normal advance against goods/services (i)
(j) Advance for supply of capital goods
Security deposit under a contract
(k) Relatives of directors of Pvt. Of Cos.
(w.e.f. Sept 15, 2015)
Deposits
[Section 73-76 of the Companies Act, 2013
The Companies Acceptance of Deposit Rules 2014]
Doctrine of Ejusdem Generis to understand the meaning of any other form.
Where specific words are followed by a general expression, the general expression is
Thank You
limited to the shared characteristics of the specific words, even though the general
expression may ordinarily have a much broader meaning
Would the following transactions fall in the definition of Deposit:
 Gold Schemes
 Unsecured debentures to other companies
 The transactions under litigation
Financial Transactions
Under the Companies Act, 2013
Investments
Loans/Guaran
-tee/security
by companies
186
Borrowings
180
Loans to
Directors &
related
entities
185
Related Party
Transactions
188
Contracts
in which
directors
interested
184
Deposits
73
22
Thank You
CS Rajendra Chopra
Sr. Vice President & Company Secretary
Bharti Airtel Limited
rajendra.chopra@bharti.in