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Loans &
advances
Under companies
act, 2013
o director or company in
ich director is interested
Sec 185
To any other Companies
Sec 186

Sec 185Sec 185
as per the companies act,2013 & circular by MCA (dated 14.2.2014)as per the companies act,2013 & circular by MCA (dated 14.2.2014)
No companyNo company → shall→ shall
Directly
or
Indirectly• Any of its
Director
•Person in
whom director
is interested
 Advance anyAdvance any
loan (includingloan (including
book debt)book debt)
 Or Give anyOr Give any
guaranteeguarantee
 Or ProvideOr Provide
any securityany security
to

Person in whom director is
interested☻☻☻☺☺☺
 Director of lending co. or Director of holding co. or
any partner or relative of any such director,
 Any firm in which any such director or relative is a
partner,
 Any private co. of which any such director is a
director or member,
 Any body corporate of which any such director or
directors having ≥25% of total voting power,
 Any body corporate if its BOD, MD or manager act
as per direction of board or of any of director , of
lending company.

Exception of sec 185Exception of sec 185
Loan to MD or WTD If as per part of
condition of service to all employees or
approved by members by SR
L/G/S by co. in ordinary course of
business Interest rate ≥ bank rate
L/ G/S by holding co. to wholly
owned subsidiary Co. (WOSC)
loan is utilized for its (WOSC) Principle
business activities

PENALTYPENALTY
((if noncompliance with sec185if noncompliance with sec185))
 Company-Company-
 Fine ≥ 5lakh up toFine ≥ 5lakh up to
25 lakh rupees25 lakh rupees
 Director or otherDirector or other
personperson
Imprisonment – upImprisonment – up
to 6 monthsto 6 months
oror
Fine ≥ 5 lakh upFine ≥ 5 lakh up
to 25 lakh rupeesto 25 lakh rupees
oror
bothboth

PRACTICAL SOLUTIONPRACTICAL SOLUTION
OF SEC 185OF SEC 185
Convert borrower company to
limited company (if common
director hold <25% of borrowing
company)
Convert lender & borrower to LLP
Change in directorship,
shareholding

LOANS AND INVESTMENTLOANS AND INVESTMENT
BY COMPANY [SECTIONBY COMPANY [SECTION
186]186]

SECTION 186(1)
• NO INVESTMENT
THROUGH MORE
THAN 2 LAYERS
OF INVESTMENT
COMPANIES.
SECTION
186(1)
• SEC186(1) Shall not
have effect –
(i) if a co. acquires any
co. which is
incorporated outside
India and such co. has
investment subsidiaries
beyond two layers as
per law of such
country.
(ii) A subsidiary co. from
having any investment
subsidiary for meeting
requirement under any
law.

SECTION 186(2)SECTION 186(2)
No company shall directly orNo company shall directly or
indirectly-indirectly-
Give loan to any person or body corporate,Give loan to any person or body corporate,
Give guarantee or provide security inGive guarantee or provide security in
connection with loan to any other bodyconnection with loan to any other body
corporate or person andcorporate or person and
Acquire by way of subscription, purchase,Acquire by way of subscription, purchase,
securities of any other body corporatesecurities of any other body corporate
60% of paid up capital 100% of free reserve
+free reserve or +securities
+ securities premium premium
Exceeding -

APPROVAL FROM MEMBERSAPPROVAL FROM MEMBERS
SECTION 186(3)SECTION 186(3)
 If loan or guarantee or security or acquisitionIf loan or guarantee or security or acquisition
exceeds the limitsexceeds the limits specified in sec 186(2),specified in sec 186(2),
then prior approval of members bythen prior approval of members by specialspecial
resolutionresolution at general meeting shall beat general meeting shall be
necessary.necessary.

Approval of board and publicApproval of board and public
financial institution[sec186(5)]financial institution[sec186(5)]
Every company shall take consent ofEvery company shall take consent of all the directorsall the directors
present at board meeting before making LGSpresent at board meeting before making LGS
In case of company has already taken loan from anyIn case of company has already taken loan from any
public financial institution then it is mandatory to takepublic financial institution then it is mandatory to take
prior approval from such public financial institution.prior approval from such public financial institution.
EXCEPTION –EXCEPTION –
i.e. prior approval of PFI shall not required-i.e. prior approval of PFI shall not required-
 LGS is within the limits as specified under sec186(2)LGS is within the limits as specified under sec186(2)
 No default in repayment of loan installments or interest.No default in repayment of loan installments or interest.

NON APPLICABILITY OFNON APPLICABILITY OF
SEC186SEC186
Nothing contain in sec186 , except sec186(1),Nothing contain in sec186 , except sec186(1),
shall apply-shall apply-
(a)(a) To LGS provided by a banking co.To LGS provided by a banking co.
or an insurance co.or an insurance co.
or a housing finance co.or a housing finance co.
or co. engaged in business of financing of companiesor co. engaged in business of financing of companies
or of providing infrastructural facilities.or of providing infrastructural facilities.
(b)(b) To any acquisition –To any acquisition –
 Made by NBFC registered under RBIMade by NBFC registered under RBI
 Made by co. whose principal business is acquisitionMade by co. whose principal business is acquisition
of securitiesof securities
 Shares allotted in section62(1)Shares allotted in section62(1)

PENALTY FOR CONTRAVENTIONPENALTY FOR CONTRAVENTION
OF SECTION186OF SECTION186
FOR COMPANY
Fine- >Rs 25000 Up to Rs 5,00,000
FOR OFFICERS-
Imprisonment- up to 2 years
Fine- >Rs 25000 up to Rs 1,00,000

THANK YOUTHANK YOU☻☻☺☺☻☻
CS MONIKA AGARWAL[CA(FINAL)CS MONIKA AGARWAL[CA(FINAL)
STUDENT]STUDENT]
CRO0242406CRO0242406

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sec 185

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