Yogita Bhatia (Company Secretary) (116 Points)
07 May 2014As per Section 186(2) of the Companies Act 2013
No Company shall Directly or Indirectly give Loan or Guarantee or Provide Security to Any Person or Body Corporate. Now My Question is under this Sub Section whether Person includes Director or Not ?
If Person include Director then Please explain Section 185(1) which starts with the phrase " Save As otherwise provided in this Act"
Please Share your Valuable Views.
Thanks
CS SAJU PHILIP MANALEL
(Company Secretary in Practise)
(157 Points)
Replied 07 May 2014
Answer to your first question is YES. Person includes Director ALSO. BUT the Section 186 starts with saving phrase "Without prejudice to the provisions contained in this Act".
The section 185 starts with "save as otherwise provided in this Act" . This section prohibits loans etc to directors and “to any other person in whom director is interested"
The opening phrase of Section 185 means that if any other provision specifically provides that one can give loan to a director etc. then that section will prevail over section 185.
However opening phrase of Section 186 is not an non obstante clause but it simply says that this section will not prejudice the other provisions of this Act. That means it doesnot have any overriding effect on any other provisions especially section 185.
In the light of above, it may be summed up as under: Whatever prohibited under Section 185 is prohibited and Section 186 is only a general provison applying to those cases which are not specifically prohibited under Section 185
CS SAJU PHILIP
Yogita Bhatia
(Company Secretary)
(116 Points)
Replied 07 May 2014
Dear Sir,
First of all thank you for your valuable Comments.
Secondly I want to ask what if a Loan is already subsisting U/S 295 after the applicability of Companies Act, 2013 (Section 185).
Do we need to Repay it ? and if Yes then within How much time?
Thanks
Jyotika
(study study n study)
(147 Points)
Replied 07 May 2014
Hi All, Save as otherwise provided in the act as mentioned in section 185 of the act seems to cover inter corporate transactions specifically covered under section 186 of the Act. No cooling period seems to be provided in the act or rules.
CS SAJU PHILIP MANALEL
(Company Secretary in Practise)
(157 Points)
Replied 07 May 2014
Please remember that it is the cardinal rule of interpretation one shoul look into the Act as whole while interpreting any provisions therein. First of all one should go for the literal meaning. Here section 185 says that only those provisions which provides for OTHERWISE will be saved from the prohibitions under this section. That means there should be some provisions which says that "not withstanding anything contained in this Act/ section 185". Unfortunately section 186 does not have any such non obstante clause. On the contrary it specifically says that the provisions contained therein would not prejudice other provisions. 'Without Prejudice' means "without detriment to any existing right or claim" or in other words section 186 will not take away any other right given elsewhere in the ACt nieither nullifies any prohibitions contained in the ACT. You can refer the case law 'Shiv Kirpal Singh vs Shri V. V. Giri" pronounced by Supreme Court.
In simple words you can not give loan to any director etc specified in Section 185 except in case provided in proviso to Section 185(1). If the party is not covered under section 185 you can give loan etc subject to the compliance of Section 186.
As of the transactions entered into complying with the provisions of section 295 of CA 1956 will not be affected by section 185. Any fresh transactions after 01/04/2014 will be covered by CA 2013
CA Sumit Arora
(CA)
(1411 Points)
Replied 07 May 2014
Hi All, Section 185 is speciifc section covering loan to directors and section 186 is a general section.
Therefore specific provision would prevail over general provision.
As far as repayment of loan or time limit for repayment of loan is concerned, there is no provision seems to exist.
Jyotika
(study study n study)
(147 Points)
Replied 07 May 2014
Dear All,
Loan to director is not of concern here the major concern is how inter corporate transactions will be done as section 185 not only talks about directors but also the other person in which director is interested which broadly covers all the coporates/person including firms where director is having any interest. So if we take that section 185 will override effect over 186 it will restrict most of inter corporate transaction covering loan and section 185 p.rovides no other alternate for the same except loan to WOS is exempt
babloo
(job)
(58 Points)
Replied 07 May 2014
P C Agrawal
(Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad)
(8229 Points)
Replied 08 May 2014
Vandana J Doshi
(Practising Company Secretary)
(12562 Points)
Replied 09 May 2014
Hi,
Saju ji has clearly explained the provisions....section 185 will prevail over section 186 which is a general provision.
CA ANIL KUMAR JAIN
(DGM FIANANCE & ACCOUNTS )
(21 Points)
Replied 19 July 2014
can anybody tell me whether All inter company transation will be covered under transation section 185 & 186 . just like if one co. are paying salary & other admin .exp. onbehaif of other co.
CAclubindia
