Loan/ Advance to Director by Pvt Ltd Co

[Arjun Gupta]

In FY20-21, a Pvt Ltd Co (having 2 Directors) has given some advance to it's Director and such advance is standing in the books as at 31-03-2021. Queries are listed as under- 

(a) Whether Section 185 will attract to such Co?

(b) No Resolution was passed (MGT-14 also not filed) when such loan was given by Co to it's Director. What will be the consequences of the same?

(c) What other non-compliance have been associated with above facts in question?

Thanks and Regards
Arjun Gupta | CA, LLB, B.Com (H)

Gupta Arjun & Co

Practicing Chartered Accountants

112 First Floor Navyug Market

Ghaziabad Uttar Pradesh 201001

[Neelam Somani]

As per the notification dated 5th june 2015 Section 185 Shall not apply to a private company –(a) in whose share capital no other  body  corporate  has invested any money;(b)  if  the borrowings  of such a company from banks or  financial  institutions or any body corporate is less than  twice  of its  paid  up share capital or fifty crore rupees, whichever is lower; and

(c) such a company has no default   in   repayment   of such borrowings subsisting at   the   time   of   making  transactions under   this section

CS Neelam Somani

C-1001, Sarovar Landmark, 

Govardhanvadi Cross Road,

Kankaria, Ahmedabad-380022

"If You think Compliance is expensive, Try Non-Compliance"

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[Arjun Gupta]

Thanks for your inputs.

In my case, the Co in question satisfies the three conditions as stated above (since no loan taken from bank till since it's incorporation and no body corporate is it's shareholder/invested any money in the co)

But what about the resolution/ MGT-14 with respect to such Advance made by Co to it's Director? Is the Co require to file the same?

[CS Vratika Sidana]

In your case non compliance of Section 185 is attracted.

Since the Section has been replaced by a new section, the exemptions as applicable in the earlier section are no longer in force.

If you check the E book of MCA, the exemption will be visible only if you view the older section in original content only.

To view this discussion on the web visit https://groups.google.com/d/msgid/csmysore/59f91f41-30be-42af-8130-b04368349cdan%40googlegroups.com.

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With Warm Regards,

Vratika Sidana

Associate Company Secretary

[Neelam Somani]

No, since it satisfies the three conditions, so no MGT 14 is required to be submitted.

CS Neelam Somani

C-1001, Sarovar Landmark, 

Govardhanvadi Cross Road,

Kankaria, Ahmedabad-380022

"If You think Compliance is expensive, Try Non-Compliance"

To view this discussion on the web visit https://groups.google.com/d/msgid/csmysore/59f91f41-30be-42af-8130-b04368349cdan%40googlegroups.com.

[Rajat solanki]

but check 2(22)e of income tax it would be considered deemed dividend 

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[Arjun Gupta]

@Ms. Vratika- Thanks for your inputs but I have checked the E Book of MCA and couldn't find the new section that you have mentioned above. Can you please enlighten your point of view in a more elaborated way?

Thanks and Regards
Arjun Gupta | CA, LLB, B.Com (H)

[Arjun Gupta]

@ Ms. Neelam- Thanks for the prompt response.

Thanks and Regards
Arjun Gupta | CA, LLB, B.Com (H)

[Arjun Gupta]

@ Mr. Rajat- Yes, you're right. Provisions of Section 2(22)(e) shall attract and they have been properly complied by the Co. in our case. Thanks for your valuable inputs.

Thanks and Regards
Arjun Gupta | CA, LLB, B.Com (H)

[Ananya Sharma]

Hi Arjun Sir! In my view,  Section 185 will not attract in your case and I agree with the response of Neelam Ma'am. 

Also, I request Ms. Vratika to kindly elaborate the new section as mentioned by her. It might happen that we have skipped some essential point.

Thanks

CS. Ananya Sharma

Email- icsash...@gmail.com

On Thursday, 24 June 2021 at 18:31:22 UTC+5:30 vrsi...@gmail.com wrote:

[HEMANT PALANPURI]

Dear Sir,

As per my opinion, non compliance of Section 185 is attracted. The Section has been replaced by a new section, the exemptions as applicable in the earlier section are no longer in force. notification " 1. Substituted by the Companies (Amendment) Act,2017- Original Content  -  Amendment Effective from 7th May 2018"

With Regards,

HP & ASSOCIATES,

Hemant Palanpuri

Company Secretaries

C-86, Tejendravihar Part - 2,

Viratnagar,

Ahmedabad - 382350

(M) +91 9722138893 

Email id: cshe...@gmail.com

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[Ankita Karnani]

Dear all

Some experts say that if an exemption is not specifically withdrawn, it will be available.. 

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[HEMANT PALANPURI]

Dear members,

I agreed with you. 

thanks

With Regards,

HP & ASSOCIATES,

Hemant Palanpuri

Company Secretaries

C-86, Tejendravihar Part - 2,

Viratnagar,

Ahmedabad - 382350

(M) +91 9722138893 

Email id: cshe...@gmail.com

_____________________________________________________

Disclaimer:

This electronic mail message and any file(s) sent with it are intended solely for the named recipient(s) and may contain confidential and individual/personal information(s) of Sender and its affiliate(s). The recipient should check this email and any attachments for the presence of viruses. The sender accepts no liability for any damage caused by any virus transmitted by this email. If you are not a named recipient or received this mail by error or otherwise, please notify the sender immediately and delete the original message/mail and all file(s) sent with it. You shall not disclose its content(s) for any purpose(s) or further store or copy its contents in any medium or mode.

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[sagar nagarkar]

Dear All, 

As far as, Income tax act is concerned, it speaks about chargeability/levy of income tax on a transaction model, but not about the permissibility/impermissibility of a transaction. However, Company act, 2013 speaks about the permissibility of transaction with or without conditions, 

As per the recent amendment in FY 2018-19, no loan, in any form whatsoever, including book debts, shall be given to individual or a firm [refer S. 185(1)]

However, its allowed to the "Person in whom any of the director is interested" us. 185(2), i.e. Person in whom any of the director is interested are Body corporates & not otherthan body corporates; 

There are certain exemptions in S. 185(3) & penal provisions are in Section 185(4),

Do remember, S. 185 is a specific section for providing loan when directors interest is involved & prima facie no other provision can prevail as far as I understood.

Your faithful,

Sagar Vijay Nagarkar

9970955081

 Defeat is not final until we refuses to awake....! 

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[CS Vratika Sidana]

Dear all,

In any section if any exemption is given, it is given considering the current language of the section like"this thing will not apply to........".

But if through amendment act 2017, the section itself has been replaced and the language of the section has been changed, how will the exemption continue to apply?

You may refer the below images that e book does not show any exception or modification. 

Even the bookmark to exception or modification is there only in old section only.

When you click the original content then along with that only the exemption is shown.

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