Rish s
Quick Summary
To Give
- Loan / Guarantee/security to Director / Director of holding Co / partner or relative of Director OR
- Guarantee/security in connection with loan taken by Pvt Co. in which such director is director or member and the loan is utilised for principal business activities.
Requirement is
Should Pass special resolution (Explanatory statement shall mention full details of loan / guarantee / security, and purpose.
Exemption
- Private Co. in which no body corporate is shareholder, borrowings from Banks / FI /Body corporate is less than 2 times its paid up capital or 50 crore (whichever is less). And there are no defaults in such borrowings.
- NBFC can give in regular course of business without special resolution.
- If given by Holding company to wholly owned subsidiary company for its principal business activities.
Fines for contravention
- Co: Min 5 lacs. Max 25 lacs.
- Every officer in default - imprisonment of up to 6 months or fine Min 5 lacs. Max 25 lacs or both.
- Recipient - imprisonment of up to 6 months or fine Min 5 lacs. Max 25 lacs or both.
Compliance
MGT 14 has to be filed within 30 days of Special resolution
FAQ :
Section 185 covers provisions related to giving loans, guarantees, or security to directors, their relatives, or directors/members of related private companies, provided the loan is used for principal business activities.
A special resolution is generally required when a company provides a loan, guarantee, or security to a director, their relatives, or certain related entities, with an explanatory statement detailing the loan and its purpose.
Yes, exemptions exist for private companies where no body corporate is a shareholder and borrowings are below a certain threshold (less than twice paid-up capital or £50 million, whichever is less), provided there are no defaults. Holding companies giving loans to wholly-owned subsidiaries for principal business activities are also exempt.
Contravention can lead to fines for the company ranging from a minimum of £5 lacs to a maximum of £25 lacs. Every officer in default and the recipient can face imprisonment up to 6 months or fines between £5 lacs and £25 lacs, or both.
Following a special resolution, Form MGT-14 must be filed with the Registrar of Companies within 30 days.
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