loan
abhishek agarwal (237 Points)
19 June 2016
wt does section 186 & its exceptions trying to say...plz summarise breifly
CA Harshal Totla
(Chartered Accountant)
(2229 Points)
Replied 19 June 2016
Section 186 covers 3 types of specified transactions entered into by a company directly or indirectly:
a. Loans to any person or other body corporate;
b. Guarantee or security given in connection with a loan to any other body corporate or person; and
c. Acquisition by way of subscriptttion, purchase or otherwise, the securities of any other body corporate.
Board of Directors of a company can approve transactions as specified above if the aggregate of all such existing and proposed transactions does not exceed higher of the following two limits:
a. 60% of its paid-up share capital, free reserves and securities premium account; or
b. 100% of its free reserves and securities premium account.
Prior approval of shareholders by way of special resolution is required in case the above limit is exceeded. However, as per Rule 11 of Companies (Meetings of Board and its powers) Rules 2014 this will not be applicable in case of specified transactions entered into by a holding company with its wholly owned subsidiary company or to a loan or guarantee given or security provided by a company to a joint venture company.
Section 186 is applicable to all types of companies including private limited companies irrespective of their size. However, it is not applicable to following transactions (except restriction of investment through not more than two layers of investment companies):
a. Loan made, guarantee given or security provided by a banking company or aninsurance company or a housing finance company in the ordinary course of business or a company engaged in the business of financing of companies or of providing infrastructural facilities as specified in Schedule-VI to the Act;
b. Any acquisition:
i. Made by an NBFC registered under Chapter IIIB of the RBI Act and whose principal business is acquisition of securities (exemption shall be in respect of its investment and lending activities);
ii. Made by a company whose principal business is the acquisition of securities
iii. Of shares allotted on rights basis pursuant to Section 62(1)(a).
abhishek agarwal
(237 Points)
Replied 20 June 2016
CA Harshal Totla
(Chartered Accountant)
(2229 Points)
Replied 20 June 2016
abhishek agarwal
(237 Points)
Replied 20 June 2016
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