Difference between Sec-185 and 186 of CA,2013

[VIMAL SHARMA Compliance]

Can anyone tell me the difference between Sec-185 and 186 of CA,2013?

Reg

VIMAL

[Lily Bali]

Dear Vimal 

According to my understanding,

1.Sec-185  deal with  Loan  to its DIRECTOR,

SEC-186 deals with Loan and investment by company.

2. In Sec-185  specially  deals or mention the word DIRECTOR.

i.e no company directly or indirectly make loan to director except the  loan to MD or WTD with condition required to statisfy

Sec-186 talk about INVESTMENT.. n Loan, guarantee or security to any other person or other body corporate.

Other views are also solicited.

Regards

ACS Lily Bali

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[VIMAL SHARMA Compliance]

Dear Ms. Lily,

Pls. refer whole section which says

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:

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 twentyfive

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.

[Raghavendra Bhat]

Dear Sir,

Just go through attached PPT. You will get the clear difference of both section.

Thanks & Regards
Raghavendra Bhat
Bangalore - 560040
Phone - 8951532022

On Wed, Apr 23, 2014 at 10:31 AM, Lily Bali <lilyb...@gmail.com> wrote:

[Arvind Kumar]

Dear Friends!!!

Still Lots of Confusion on 185/186.

Kindly clearly State whether Corporate Guarantee can be Given?

IF yes, on what are the relevant Points.?

If NO, then what are the Relvant Point

[VIMAL SHARMA Compliance]

As per my understanding,Corporate Guarantee can be Given with compliance of Sec-186 if its out of Section 185.

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[Saurav Roy]

Sec.185 – Loan to Directors, etc.:

1. No loan to anyone in which any relation/interest exist between Director & that other party. Banking and NBFC are allowed to provide loan as it comes under their ordinary course of business.
2. Loan from holding to subsidiary, between sister concerns and in other related company permissible only if it comply with section 186.
3. Interest of director with other party defined in explanation u/s 185(1) in 5 categories:

a.    Any director of - lending company, or of a company which is its holding company or any partner or relative of 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 director or member;

d.    Any BC[body corporate] at a GM of which = 25% of total voting power – handle by – any such director or by 2 or more directors together;

e.    Any BC where BOD accustomed to act as per lending company BOD.

Exception/Relaxation: Loan to MD or WTD permissible if,

1. It comes under general employee loaning scheme [Dr. Fredie Ardeshir Metha vs. UOI csae] e.g. Sale of flat to Director under installment payment Scheme. Earlier DCA also issue a clarification similar on Housing Loan.
2. Interest Rate = RBI bank rate (revision as per quarterly revision in rates)

Impact of Companies (Meetings of Board and its Powers) Rules, 2014:

WOS exempted from complying with Sec 185 subject to condition that such loans are utilized by the subsidiary company for its principle business activities.

Sec.186 – Loan and Investment by company [Inter-corporate loan & investment]:

1. U/S 186 (1) Maximum 2 layers of investment permissible for any permutation and combination.  
2. Maximum permissible investment/loan/guarantee/security amount:
1. Situation I – Investment/ Loaning via BR in a BM = whichever is more

                                          i.    Sum [60% of Paid up share capital + Free Reserve + Sec. Pre. Account ]

                                         ii.    Sum [100% of Free Reserve + Sec. Pre. Account ]

2. Situation II – Prior SR approval in GM if limit exceeds from Situation I
2. Full disclosure of point 2 required to made to it’s members in the Financial Statements + Purpose of providing the same.
3. Approval required for investment/loan/guarantee/security amount on a BR in a BM. If any loan subsisting from a PFI than their prior approval on the same required.
4. Relaxation from PFI approval provided if proposed amount within the limit of Situation I mentioned above + No default in payment of loan installment or interest thereon.
5. Loan Rate = Depend upon loan tenure; equivalent to 1,3,5 or 10 years government securities yield NOT Less then it.
6. Prior defaulter of any public deposit not allowed to lending any amount of money unless default is ratified.

Impact of Companies (Meetings of Board and its Powers) Rules, 2014:

1.    Under Sub-Rule 11 - Where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company, the requirement of SR shall not apply: 

2.    Explanation on SR- It is clarified that it would sufficient compliance if such special resolution is passed within one year from the date of notification of this section.

Sec.188 – Related party transactions:

1. Related party defined in Section 2(76). Loaning by financial leasing covered under Section 188 (1)(c). Whereas profit to a related party/relative of director via his/her appointment covered under Section 188 (1)(f).
2. No contract or arrangement is possible (as MCA notified - leasing of property of any kind exceeding ten percent. of the net worth or exceeding ten percent of turnover as mentioned in clause (c) of sub-section (1) of section 188;) unless Prior approval of SR in GM. Interested persons not eligible to participate in voting. Every such contract must be referred in Board’s Report in Annual Return with justification.
3. Transaction should be at Arm Length Price.

Impact of Companies (Meetings of Board and its Powers) Rules, 2014:

The agenda of the Board meeting at which the resolution is proposed to be moved shall be in conformity of sub rule 15 of this rule.

As per Explanation-

(1) The Turnover or Net Worth referred in the above sub-rules shall be on the basis of the Audited Financial Statement of the preceding Financial year. 

(2) In case of wholly owned subsidiary, the special resolution passed by the holding company shall be sufficient for the purpose of entering into the transactions between wholly owned subsidiary and holding company.

Regards

CS Saurav Roy

[CS Chandru]

Hi,

 

The provisions of Sec 185 & 186 should be studied and observe from case to case basis to undertand whether particular transaction in hand is allowed or prohibited u/s 185 and if so allowed, should observe whether same would  attract Sec 186 where special resolution required to be passed

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Thanks & Regards

CS Chandrashekhar

+91 9743148312

 

Go GREEN...please consider environmental responsibility before printing this e-mail

[Arvind Kumar]

Thnx

OUR MAIN CONCERN IS CORP. GUARANTEE ONLY

FOR EXAMPLE:

ABC LIMITED WANT TO GIVE CG TO PQR IN WHICH THERE ARE COMMON DIRECTORS - SO SEC 185 WILL APPLICABLE AND THEREFORE CAN'T GIVE CORP. GUARANTEE??

ABC LIMITED WANT TO GIVE CG TO PQR IN WHICH THERE ARE NO COMMON DIRECTORS - SO SEC 185 WILL APPLICABLE AND THEREFORE CAN GIVE CORP. GUARANTEE??

ABC LIMITED WANT TO GIVE CG TO PQR IN WHICH THERE ARE COMMON DIRECTORS - SO SEC 186 WILL APPLICABLE AND THEREFORE CAN'T GIVE CORP. GUARANTEE UPTO THE LIMIT SPECIFIED??

ABC LIMITED WANT TO GIVE CG TO PQR IN WHICH THERE ARE NO COMMON DIRECTORS - SO SEC 186 WILL APPLICABLE AND THEREFORE CAN GIVE CORP. GUARANTEE UPTO THE LIMIT SPECIFIED??

On Tuesday, April 22, 2014 11:55:11 AM UTC+5:30, corp.compliance003 wrote:

[CS Chandru]

Hi,

 

pls see my comments in italic below each of queries raised -

 

ABC LIMITED WANT TO GIVE CG TO PQR IN WHICH THERE ARE COMMON DIRECTORS - SO SEC 185 WILL APPLICABLE AND THEREFORE CAN'T GIVE CORP. GUARANTEE??

In this case, extending CG is completely prohibited since this is clearly diluting the very purpose of Sec 185

 

ABC LIMITED WANT TO GIVE CG TO PQR IN WHICH THERE ARE NO COMMON DIRECTORS - SO SEC 185 WILL APPLICABLE AND THEREFORE CAN GIVE CORP. GUARANTEE??

 

Here, if PQR is not  a'Person in which directors are interested'as under Sec 185, CG can be extended subject to Sec 186 complainces

 

ABC LIMITED WANT TO GIVE CG TO PQR IN WHICH THERE ARE COMMON DIRECTORS - SO SEC 186 WILL APPLICABLE AND THEREFORE CAN'T GIVE CORP. GUARANTEE UPTO THE LIMIT SPECIFIED??

 

In this, this is barred under Sec 185 at very first place before looking into Sec 186

ABC LIMITED WANT TO GIVE CG TO PQR IN WHICH THERE ARE NO COMMON DIRECTORS - SO SEC 186 WILL APPLICABLE AND THEREFORE CAN GIVE CORP. GUARANTEE UPTO THE LIMIT SPECIFIED??

 

if PQR is not  a'Person in which directors are interested'as under Sec 185, CG can be extended subject to Sec 186 complainces

 

Person in which directors are interested - scope is larger than two companies with common directors

 

As per rules -

 

Sec 185 - Exempts giving loan/guarantee/secutiry in connection with loan to WOS and guarantee/secutiry to a sibsidiary provided such loan utilised only for principle biz of subsidiaries.

 

Sec 186 -  exempts Invt/loan/guarantee/secuitry in conection wit loan availed by WOS (as sec 372A) and such transaction with JV from the applicabilty of provisions.

 

 

 

On Wed, Apr 23, 2014 at 2:56 PM, Arvind Kumar <csarv...@gmail.com> wrote:

Thnx

OUR MAIN CONCERN IS CORP. GUARANTEE ONLY

FOR EXAMPLE:

 

On Tuesday, April 22, 2014 11:55:11 AM UTC+5:30, corp.compliance003 wrote:

Can anyone tell me the difference between Sec-185 and 186 of CA,2013?

Reg

VIMAL

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[csyogan .]

can you please be more specific..

On Tue, Apr 22, 2014 at 11:55 AM, VIMAL SHARMA Compliance <corp.comp...@gmail.com> wrote:

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[AKY & CO. Company Secretary]

We Want to Know the Different Situations with Examples in which CG can be Given by one Company to another.

Kindly provide your valuable suggestion also.

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Your early response/acknowledgement in this regard will be highly appreciated.

BEST REGARDS
A K Y & CO.
"Taking Excellency to New Heights"
Company Secretaries in Whole Time Practise
509, Rajhans Complex
Nr. Nirmal Children Hospital,
Civil Char Rasta,
Ring Road,
Surat (Gujarat) - 395 002
Ph No. 0261- 3987333/2707333
Mob.: +91 99099-65432
Email:csarv...@gmail.com, ak...@outlook.com

 

[CS Chandru]

Hi,

 

CG can be extended in connection with loan availed by company as long as borrowing company not falling under category of 'persons in which director of lending company interested' as given in Sec 185. 

If the borrowing Company doesnt fall so, CG may be extended by lending co by complying with Sec 186 provisions.

[Vivek Hegde]

Dear Members,

I agree with Mr. Chandru. Section 185 prohibits certain transaction. If the transactions are not prohibited under Section 185, such transaction have to be within the limits prescribed under Section 186. 

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710677

[Ramaswami Mohan]

1. what is the difference between corporate guarantee and giving of a particular property as a 3 rd party security to another associated company.

2. can a subsidiary co give a corporate guarantee or 3 rd party security for the borrowings made by its holding company.

Members, pl share ur views.

regards,

Mohan

CS. R.  Mohan
Mobile: 9908814677

[Prakash M]

Dear Vivek,

Can i have a different interpretation of Section 185 & 186 

The wordings of Section 185 (1) of the Act starts with the saving provisions which reads as “Save as otherwise provided in this Act ………………………….", which means the provisions of Section 185 (1) are subject to and to be read with the savings/ exceptions provided elsewhere in the act. Section 186 (2) of the act stipulates certain conditions in relation to loans, guarantees and security to and investment in other bodies corporate with an overall cap on the quantum thereof to 60% of paid up capital + free reserves + security premium OR 100% of free reserves + security premium subject to an appropriate authority and approval from the Board of Directors. However in case of amount exceeding the overall cap, there is a stipulation to have authority and approval from members in the form of a special resolution.

Now, since the Section 186 has been notified and can any Company still get into such stipulated transactions (giving Loan or guarantee to related parties) either within the overall cap by an appropriate authority and approval from its Board of Directors and in case of exceeding the cap, by an appropriate authority and approval from members in the form of a special resolution for giving loan or guarantee.

Members please throw some light on this

[grk...@gmail.com]

Dear Mr Prakash
I read your mail . Complying with Sec 186 easier compared to the other.

If holding company gives guarantee etc to Subsidiary apart from 186 , Se c 185 to be complied because wording covers indirect control. ( 25 per cent or more ) . Chances of Holding company having control over Subsidiary thro director etc are high . In this context when sec 186 applies Second 185 also applicable .

Can you pl revert with your inputs

Regards
Ramakrishnan

Sent from BlackBerry® on Airtel

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From: Prakash M <tmaco...@gmail.com>

Sender: csmy...@googlegroups.com

Date: Fri, 25 Apr 2014 17:18:10 +0530

To: CSMysore<csmy...@googlegroups.com>

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Subject: Re: [CSMysore] Difference between Sec-185 and 186 of CA,2013