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Section 185

MaNThaN Shah (Student) (315 Points)

24 May 2014

Can company give loan to another compnay having common directors??

New Section 185 apply? what are the consequences of the same?

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JIBIN THOMAS BABU (CA FINAL STUDENT) (147 Points)
Replied 24 May 2014

Section 185 of the Companies Act, 2013 has been made operational from 12-09-2013.This sec is applicable for all companies. This sec states that:

No company can advance loan to its “directors” or to “other persons in whom directors are interested”.

No company can give any guarantee or provide any security in connection with any loan taken by him or such other person.

EXCEPTIONS:

The giving of any loan to a managing or whole-time director—

(i) as a part of the conditions of service extended by the company to all its employees; or

(ii) pursuant to any scheme approved by the members by a special resolution; or

A company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.

The expression “TO ANY OTHER PERSON IN WHOM DIRECTOR IS INTERESTED” means—

(a) any director of the lending company, or of a company which is its holdingcompany or any partner or relative of any such director;

(b) any firm in which any such director or relative is a partner;

.(d) 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; or

(e) 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.

IMPRISONMENT & PENALTY UPTO 25 LAKHS :

If any loan is advanced or a guarantee or security is given or provided in contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.