Queries related to Section 185 of Companies Act, 2013

[Shruti Thakur]

Dear all,

 

As we know Section 185 of the Companies Act, 2013 pertaining to loans of Directors has been made applicable from 12th Sep 2013 which now applies to all the companies including private companies. I have following queries related to this section.

 

• What happens where the private/public company has already given loans to another company which has common director(s) before applicability of this rule. Is there a need to call it back or it can stand in the books of account as a pre-existing loan.
• How will the accrued interest on the said existing loan be treated. The outstanding amounts will keep getting increased due to the accrued interest on the loans though no fresh loans are given to the  directors.
• The proviso to section 185(1) gives an exemption to loans given to a managing director/ whole time director pursuant to a scheme approved by the members by way of special resolution. What are  the contours of this scheme.

Please suggest.

 

Thanks & Regards.

 

[sree Lakshmi]

• According to my opinion since the section 185 is applicable wef 12.09.2013 it shall not be applicable to any loans taken prior to it and hence it can stand as pre-existing loan.

               Since loan is taken before section is notified it is also not applicable to interest on such loans. 

 

Thanks & Regards.

 

[CS Chandru]

Hi,

 

I agree with this. The moneys borrowed from persons who are prohibited under Sec 185 before this provision coming into force, shall continue to exist till full repayment of such loans along with interest. There is no requirements of calling back such loans which would otherwise pose practicle difficulties to going concern of a Company and that there is no MCA clarification has come requiring to do so. 

 

So it is clear that the compliances under Sec 185 shall be taken care of only from on or after 12.9.2013  

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Thanks & Regards

CS Chandrashekhar

+91 9743148312

 

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