Provision Relating to
Loan &
Advances/Investment In
Companies Act 2013
Loan to Directors,
etc.
Loan to Directors (Section 185)
SAVE AS OTHERWISE PROVIDED IN THE ACT
No Company shall directly or indirectly,
 Advance any loan (including loan represented by book debt)
 Gives any guarantee or provide any security in connection
with a loan to:
 Any Director
 Any other person in which Director is interested which means
i. Director of lending Company or of a holding company
ii. Partner of director
iii. Relative of director
Loan to Directors (Section 185)
Continued…
iv. Firm in which such director is a director or relative is a partner
v. Any private company in which director is a director or a
shareholder
vi. Body corporate where 25% or more voting power is held by
one or more director
vii.Body corporate, Board of director, managing director, or
manager accustomed to act as per instruction of lender or one
or more director
 Contravention Punishment:
a. Minimum Rs. 5lakh to Rs. 25 lakhs on lending company
b. Director or other person to whom loan advanced/ security
provided :
i.
Imprisonment upto 6 months or
II. Fine of minimum Rs. 5 lakhs to Rs. 25 lakhs
 Exemption
 If in the Ordinary course of business
• Provide loans or give guarantee or security for due
repayment of any loans.
and
• In respect of Such loans an interest is arranged
• Not less than Bank rate announced by RBI
 Loans to MD or Whole Time Director
• Part of condition of service or
• Pursuant to scheme approved by Special resolution.
Rule 10 of Board Rules
 Loan by Holding company to/ for :
Wholly owned subsidiary exempted from section 185
 Guarantee/ security to others for loan by other than bank/ FI
exempted only for wholly owned subsidiary.
 Section 185 do not authorise rule making. This rule is in
general powers of exemption under section 462.
 Guarantee given or security provided by holding company for :
Loan by bank or FI to any subsidiary company exempted
Loan and Investment by
company
Loan and investment by company (Section 186)
(Section 372 A as per CA 1956
1.
Section 186 as per CA, 2013)
Company shall make investment through not more than
 Two layers of
 Investment Company
Except:
 Outside India as per local laws.
 To meet requirement of law or regulation or rules under law.
Continued…
Loan and investment by company (Section 186)
Continued…
2. No company shall directly or indirectly:
 Give any loan, guarantee/ provide security for loan to any:
 Any person, or
 Body Corporate
 Acquire securities of any other Body Corporate


exceeding 60% of Paid up Capital plus free reserves plus security
premium or
100% of free reserves plus securities premium,
whichever is more.
Continued…
Loan and investment by company (Section 186)
3. Loan or investment in excess of limits.
 Special Resolution by shareholders.
 Unanimous consent of all the directors present in a meeting.
 No resolution by circulation
 Whether general consent or authorisation will work similar to
erstwhile section 293 old
New section 180
4. Prior approval of public financial institution where loan
subsisting for exceeding limit as per Section 186(2) or where is a
default.
 Word “Bank” or “Lender” is not there in the Law.
Continued…
Loan and investment by company (Section 186)
Continued…
5. Loan at minimum interest rate equal to yield Government
security as per tenor (1/3/5/10 years).
6. Defaulter of Deposit or interest thereon prohibited to give Loan
or guarantee.
7. Register of loans, guarantees, Securities.
8. Financial statements to contain full particulars
a. Loan given
b. Interest made
c. Guarantee given
d. Security provided
To also disclose purpose of utilisation by recipient or
loan/guarantee/ security
Loan and investment by company (Section 186)
Continued…
EXCEPTIONS:
Section 186 do not apply to
 Banking Company
 Insurance Company
 Housing finance
 Company engaged in the Business of financing
 Company providing infrastructural facilities.
 NBFC whose principal business is security acquisition
Exemption from lending and investment both.
 Company whose main business is acquisition of securities.
 Share investment in Right issue of investee company(under
section 62(ii)
Exemption (Rule 11 Board rules)
Resolution under Section 186(3) not needed if:
•Loan or Guarantee or Security to Wholly Owned Subsidiary or Joint
Venture Company
 Joint Venture Company not defined
 Gateway to exempted loans to all company whose shares are
owned under a JV agreement
•Investment in Wholly Owned Subsidiary
Special resolution (Rule 13 Board rules)
Special resolution required under section 186(3)
As per section prior approval special resolution in a meeting is
specified. As per rule 13(1) prior approval by special resolution
prescribed.
Existing loan and investment :
Special resolution to be passed within 1 year from notification of
section 186.
•Rule 13(2) permits general authority by special resolution to Board to
specify upper limit of total amount of loan, investment, guarantee
and/or security in relation to Loan.
Board approval will still be a must on unanimous basis.
This Board Resolution needed even within 60% limit.
Draft Notification For Public Comments
Dated 24/06/2014
Proposed Changes by MCA to Section 185 :
Section 185 shall not apply to private companies:
Which have borrowings from banks/ FI or any body
corporate of not more than 2 times of paid up share capital or
Rs. 50 crores whichever is less. or
 No other body corporate has invested money in share
capital.
GENERAL CIRCULAR NO.15/2014
[F.NO.5/6/2014-CL-I], DATED 9-6-2014
•Clarification with regard to maintenance of register of
loans/guarantee/security/making acquisition in new format.
•Form MBP 2 shall be used for entering particulars of intercorporate loans and deposits w.e.f. April 1, 2014.
Resolution which has to be filled with ROC
MGT 14 has to be filled for the following resolution
within 30 days :
 to borrow monies
 to invest the fund of the company
to grant loans or give guarantee or provide security
in respect of loans. ( Section 179(3))
VINOD KUMAR & ASSOCIATES
CHARTERED ACCOUNTANTS
vinodjainca@gmail.com
+919811040004
NEW DELHI
GURGAON
909 Chiranjiv Tower
43 Nehru Place
New Delhi – 110019
Global Business Square
Building No. 32, Sector 44
Institutional Area, Gurgaon,
Haryana – 122002
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Darya Ganj New Delhi - 110002
Disclaimer: While every care has been taken to ensure accuracy of this presentation, Vinod Kumar & Associates shall not
assume any liability/ responsibility for any errors that might creep in. The material herein does not constitute/ substitute
professional advice that may be required before acting on any matter.