ABC Pvt Ltd is formed during FY 2018-19. During FY, the Company has given some loans to directors. The directors were not aware of provisions of Section 185 of Companies Act that the Pvt Ltd company can not give loans to its Directors. That means the Company has violated this provision. Realizing this now, The Directors are ready to repay that amount to the company. This is a genuine case that most of the times the directors of Pvt Ltd company may not be aware of such provisions in very 1st year of the formation of the company.
Can we say now (after receiving above repayment) that the Company has not violated the provisions of Section 185 of Companies? Whether this needs to be reported in Statutory Audit report?
14 March 2019
Pl note that section 185 shall not apply to a private company - (a) in whose share capital no other body corporate has invested any money;
(b) if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice its paid up share capital or fifty crore rupees which ever is lower ;and
(c) such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this section.
Kly go through the above and redraft the query for comments, if u so wish.
15 March 2019
Dear Sir, I re-aligned my query. 1) A Pvt Ltd Co. is formed in FY 2018-19 with two directors. 2) In its share capital, no other body corporate has invested any money. During FY 2018-19. Till date It has not borrowed money from any banks or FIs or any other corporate . Therefore no question of default in repayment of such loans exist. 3) Directors made transfers of fund on 7-8 Occasion from Company which can be treated as loan to Directors. The directors remuneration is considered separately. The directors were not aware of such provisions of Section 185. Now the directors are ready to repay it to the company.
Sir, considering your reply above, can I conclude it as below? 1) Section 185 wont be applicable to this Pvt Ltd Co. 2) There is no need to disclose these facts in statutory report. Also no need to inform this violation to the ROC.
11 January 2020
The provisions of sec. 185 was substituted by the Companies (Amendment) Act,2017 [Effective from 7th May 2018]. New provision does not contain such provisions for exception. Sr It is my humble request, please go through the provisions before advising any person.
CAclubindia
