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Faqs on section 186 of companies act 2013

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)

08 May 2014

Dear friends,

I have compiled FAQs on Section 186 of Companies Act 2013. Hope it will be useful.

Thanks

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12 Replies

Vandana J Doshi (Practising Company Secretary) (12562 Points)
Replied 08 May 2014

Thank you Sir...

CA Nimesh Maheshwari (Commercial Manager) (334 Points)
Replied 08 May 2014

Dear Sir,

Thank you for providing such a nice compilation.

Further, I have a query based on reading of FAQs.

Suppose, somehow, the company has borrowed funds (by passing a resolution in a board meeting) in excess of cieling limit without obtaining PRIOR APPROVAL of shareholders by way of special resolution. Also, the Company is not in a position to repay such funds, being already invested, within the next one year.

Now, the company has become aware of such default. What will be the repercussions of such default? Is there any way that the Company / Shareholders can ratify such act by the Board.

Pawan Mittal (CA Final) (702 Points)
Replied 13 May 2014

Respected Sir,in your above collection Frequently asked questions on Section 186 of Companies Act 2013,Q.6. Upto what limit shareholders can give approval for such transactions?

Is there any limit u/s 180. (1) © also ?

anonymous II (director) (60 Points)
Replied 13 May 2014

AN NBFC takes inter corporate loan from a private limited/limited concern say company no. 1 @ 12% p.a. and gives it to another private limited/limited say company no. 2 @ 15.30 p.a. Suppose company no. 2 is associate/subsidiary/holding company of No. 1 company or any director of company No.1 is interested in company no. 2 or vice versa. Now query no. 1. is there any violation of rules according to companies act 2013 in giving loan to company no 2 by NBFC by taking loan from company no. 1 ? Now query no. 2 is there any violation of rules according to companies act 2013 if NBFC takes guarantee also from company No. 1 for giving loan to company no. 2?

Thanks in advance,

CA Nimesh Maheshwari (Commercial Manager) (334 Points)
Replied 13 May 2014

Originally posted by : anonymous II
	AN NBFC takes inter corporate loan from a private limited/limited concern say company no. 1 @ 12% p.a. and gives it to another private limited/limited say company no. 2 @ 15.30 p.a. Suppose company no. 2 is associate/subsidiary/holding company of No. 1 company or any director of company No.1 is interested in company no. 2 or vice versa. Now query no. 1. is there any violation of rules according to companies act 2013 in giving loan to company no 2 by NBFC by taking loan from company no. 1 ? Now query no. 2 is there any violation of rules according to companies act 2013 if NBFC takes guarantee also from company No. 1 for giving loan to company no. 2? Thanks in advance,

According to sub section 1 of section 185 of the Companies Act, 2013:

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

As per my understanding, here the word indirectly signifies giving of loans to the related parties using one or more intermidiaries.

Hence the above treatment would tentamount to non - compliance with the Act, if found.

Hope the above would solve your query.

Thanks.

anonymous II (director) (60 Points)
Replied 14 May 2014

Respected sirs in general and CA Nimeshji in particular,

please answer this query also:

If company is a private limited NBFC, having loan from its shareholders as on 31.3.2014, will it also has to submit form DPT-4 with ROC within 3 mths and repay it back within this FY.

CA Nimesh Maheshwari (Commercial Manager) (334 Points)
Replied 14 May 2014

Originally posted by : anonymous II
	Respected sirs in general and CA Nimeshji in particular, please answer this query also: If company is a private limited NBFC, having loan from its shareholders as on 31.3.2014, will it also has to submit form DPT-4 with ROC within 3 mths and repay it back within this FY.

Proviso 1 of Sub Section 1 of section 73 of the Companies Act 2013 excludes a banking company and nonbanking financial company as defined in the Reserve Bank of India Act, 1934 from the applicability of Chapter V of the Companies Act 2013.

Further, Sub rule 3 of Rule 1 of the Companies (Acceptance of Deposits) Rules, 2014 deals with Short title, commencement and application also excludes the nonbanking financial company from applicability of new deposit rules.

Thus, as per my understanding, there wont be any need for submitting Form no. DPT-4 with the ROC in this case.

Hope the above would solve your query.

Thanks.

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 14 May 2014

Mr Nimesh - Your query is in fact on Sec.180(1)(c) and not on Sec.186. Such excess borrowing is not valid u/s 180(5). Act requires prior approval of members. However, if it is not taken, it would be advisable to take susequent approval and file return with ROC. In case any notice for default is received, company can go for compounding of offence.

praveen (Chartered Accountant) (6971 Points)
Replied 26 May 2014

Hello, I have a similar query, Say A (Pvt Ltd) gives loan to B (NBFC + Pvt Ltd) and further B (NBFC + Pvt Ltd) gives loan to C (Pvt Ltd). What are the issues involved in this arrangement? As per my knowledge 1) A can get into trouble since it is indirectly giving loan to C using B 2) B being an NBFC may not face any problems under Section 186 since for an NBFC the section is not applicable. It can take money also from A since even under the deposit rules NBFC is excluded. Please let me know if my understanding is right.

praveen (Chartered Accountant) (6971 Points)
Replied 26 May 2014

will the answer change if a and c are under same management.

ARUN KUMAR MAITRA (Practicing Company Secretary) (1016 Points)
Replied 22 August 2014

Thanks for brilliant FAQ on section 186 written by MR.P.C. Aggarwal.

sanchetna shivdas (articled assistant) (21 Points)
Replied 27 February 2015

if the company has not taken any term loans during the current year then how can we know clause 4(xi) of section 301 has been played under the section 301 of companies act 1956???

please give me speedy reply to this query...!!