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Section 185 of the companies act, 2013 (Corporate Law)

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( Author )
11 December 2013

I want to know the meaning of this line "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." in Section 185 of the Companies Act, 2013.
Secondly, I want to know that a Private company is giving a corporate guarantee and collateral security to other Private company in which the Directors are common then what is the procedure to be followed in this regard, whether we have to pass special resolution or take Central Government in this regard.
Please reply early, it is urgent.


Ajay Mishra

( Expert )
11 December 2013

As per my view, it is talking about Bank Base Rate as defined by RBI for banking sector.


MUKESH JOSHI

( Author )
11 December 2013

Thanks a lot sir for your early reply, but can you give me reply regarding whom permission to be taken regarding one private company giving corporate guarantee and collateral security to another private company in which directors are common in both the companies and what is the procedure to be followed in this regard.


Ajay Mishra

( Expert )
11 December 2013

As on date the provision of Section 185 is not applicable so no need to follow the procedure.

Read Circular 18/2013 dated 19.11.2013.


MUKESH JOSHI

( Author )
11 December 2013

But sir in this Circular it is talking about inapplicability of section 186 of the Companies Act, 2013 (earlier Section 372A of the Companies Act, 1956) will be inapplicable so whether it will also cover Section 185 of the Companies Act, 2013, I am little confused regarding this.


Ajay Mishra

( Expert )
11 December 2013

Yes, loan to director covered under section 185 is not applicable and section 295 of CA, 1956 will be applicable.



MUKESH JOSHI

( Author )
11 December 2013

Thanks a lot sir.


Ajay Mishra

( Expert )
11 December 2013

My Pleasure..........


MUKESH JOSHI

( Author )
11 December 2013

Sir, I have read an article in "newsletter@vaishlaw.com" under heading of "CONFUSION CONTINUES DESPITE MCA CIRCULAR" which says that "Section 372A of the Old Act and Section 186 of the New Act (as and when notified), in our view provides for procedural requirements to be followed and are general in nature and cannot, in our view, exempt the transactions restricted under Section 185 of the New Act. Section 185 of the New Act is a specific provision restricting certain classes of transactions and thus should override Section 372A of the Old Act and Section 186 of the New Act (as and when notified). This view can be further fortified in light of the legal maxim Generalia specialibus non derogant, which means universal things do not detract from specific things. This well-known proposition of law says that when a matter falls under any specific provision, then it must be governed by that provision and not by the general provision. The general provisions must admit to the specific provisions of law. It is a basic principle of statutory interpretation."
So what to do in this regard.


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