Loan to nbfc company
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
07 June 2014
Can a company give loan to nbfc company in which directors are common.
07 June 2014
No. Giving loan in this case will be in contravention to the provision laid down in section 185 of the Companies Act 2013.
07 June 2014
185. Loan to Directors etc.
(1) Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person:
Provided that nothing contained in this subsection shall apply to—
(a) the giving of any loan to a managing or wholetime 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
(b) 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 loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.
Explanation.—For the purposes of this section, 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 holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(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.
(2) 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.
With the Section 185 coming into force from 12.09.2013, the position for the loan to directors has been changed. Section 185 of Companies Act, 2013 can be understood by dividing its provisions as follows:
RESTRICTIONS
No Company shall directly or indirectly advance any loan, including any loan represented by a book debt, to any of its Directors or to any other person in whom the Director is interested, or give any guarantee or provide any security in connection with loan taken by Director or such other person.
Thus, a Company (hereinafter referred to as 'Lending Company') cannot advance a loan to:
Any Director;
Any Director of Holding company of the Lending company;
Any Partner or Relative of any such Directors mentioned above;
Any Firm in which any such Director or Relative is partner;
Any Private Company of which any such Director is a Director or Member of Lending Company;
Any Body Corporate (i.e. Company or LLP) at a general meeting of which not less than 25% of total voting power may be exercised individually or jointly by any such Director/(s) of Lending company;
Any Body Corporate, the Board of Directors of which is controlled by the any Director(s) of Lending Company.
EXEMPTIONS
The aforesaid restrictions are not applicable to:
Giving any loan to the Managing or Whole-time Director in following manner:–
(i) as a part of the conditions of service extended by the company to all its employees;
(ii) pursuant to any scheme approved by members vide special resolution.
A Company which provides loans in the ordinary course of its business and interest in respect of such loans is charged at a rate not less than Bank rate declared by RBI.
PENALTIES
On Lending Company
In case of contravention of this section, the Lending Company shall be punishable with a minimum fine of Rs.5 lacs but which may extend to Rs.25 lacs;
On Recipient Director/ Entity
In case of contravention of this section, the recipient Director or other entity shall be punishable with imprisonment which may extend to six months or with a minimum fine of Rs.5 lacs but which may extend to Rs.25 lacs, or with both.
(1) Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person:
Provided that nothing contained in this subsection shall apply to—
(a) the giving of any loan to a managing or wholetime 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
(b) 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 loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.
Explanation.—For the purposes of this section, 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 holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(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.
(2) 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.
With the Section 185 coming into force from 12.09.2013, the position for the loan to directors has been changed. Section 185 of Companies Act, 2013 can be understood by dividing its provisions as follows:
RESTRICTIONS
No Company shall directly or indirectly advance any loan, including any loan represented by a book debt, to any of its Directors or to any other person in whom the Director is interested, or give any guarantee or provide any security in connection with loan taken by Director or such other person.
Thus, a Company (hereinafter referred to as 'Lending Company') cannot advance a loan to:
Any Director;
Any Director of Holding company of the Lending company;
Any Partner or Relative of any such Directors mentioned above;
Any Firm in which any such Director or Relative is partner;
Any Private Company of which any such Director is a Director or Member of Lending Company;
Any Body Corporate (i.e. Company or LLP) at a general meeting of which not less than 25% of total voting power may be exercised individually or jointly by any such Director/(s) of Lending company;
Any Body Corporate, the Board of Directors of which is controlled by the any Director(s) of Lending Company.
EXEMPTIONS
The aforesaid restrictions are not applicable to:
Giving any loan to the Managing or Whole-time Director in following manner:–
(i) as a part of the conditions of service extended by the company to all its employees;
(ii) pursuant to any scheme approved by members vide special resolution.
A Company which provides loans in the ordinary course of its business and interest in respect of such loans is charged at a rate not less than Bank rate declared by RBI.
PENALTIES
On Lending Company
In case of contravention of this section, the Lending Company shall be punishable with a minimum fine of Rs.5 lacs but which may extend to Rs.25 lacs;
On Recipient Director/ Entity
In case of contravention of this section, the recipient Director or other entity shall be punishable with imprisonment which may extend to six months or with a minimum fine of Rs.5 lacs but which may extend to Rs.25 lacs, or with both.
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