FW: Conflict between Section 179 and Section 186 of the Companies Act,2013-Need for harmonizing the provisions
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Kalidas Ramaswami
Jun 13, 2014, 1:50:18 AM6/13/14
to ranjit agarwal, foru...@googlegroups.com
Attaching for the group a represntation which I have made to the Assistant Director ,MCA for resolving the conflict between Section 179 and !86 on the point of provisions of loans and guarantees.
regards
kalidas
From: ramaswam...@hotmail.com
To: kamna....@mca.gov.in
Subject: RE:Conflict between Section 179 and Section 186 of the Companies Act,2013-Need for harmonizing the provisions
Date: Thu, 12 Jun 2014 18:39:20 +0530
regards
kalidas
From: ramaswam...@hotmail.com
To: kamna....@mca.gov.in
Subject: RE:Conflict between Section 179 and Section 186 of the Companies Act,2013-Need for harmonizing the provisions
Date: Thu, 12 Jun 2014 18:39:20 +0530
Madam,
I wish to introduce myself as a fellow member of the Institute of Company Secretaries of India.I am employed as Vice president and company Secretary of a large listed Company.
I wish to draw your kind attention to the apparent dichotomy in the Companies Act 2013 in the matter of exercise of powers by the Board u/s 179 and Section 186 as regards provision of loans and investments.
I seek indulgence of your precious time and would elaborate as under;
As you are aware Section 179 lists out the powers of the Board which are exercisable by the Board.Subsection (3)sets out the powers that are to be exercised by means of resolutions passed at the meetings of the Board.The power to invest the funds of the company and to grant loans,or give guarantee or provide security in respect of loans are provided by Clauses (e) and (f) respectively in Section 179(3).The proviso under Section 179(3) clarifies that the above two powers can be delegated to a Committee of Directors ,the Managing director or any principal officer of the company on such conditions that the Board may specify. A plain reading of the above Section would suggest that the above two powers, inter alia, are exercisable by the Bord or by a Committee of directors or by the MD subject to such fetters ,as may be imposed by the Board.
As you are aware,Section 179 is very substantially similar in content to Section 292 in the 1956 Act.
The provision of loans and investments by a company is as you are aware regulated by Section 186 which forms by itself a composite code .The Section is also in the nature of a specific provision.The Section corresponds substantially to Section 372A in the 1956 Act although there are subtle differences.Whereas Section 372A regulated, inter alia,the provision of loans,guarantees and securities to any other body corporate ,the contours of Section 186 run wider and encompass within its ambit the provision of loans and guarantees to any person or other body corporate.Thus even the provision of loans to non-corporate bodies uch as firms or to employees of the Company would come within the ambit of the provision.If the Section is to be construed strictly as it should be ,being in the nature of a specific provision,it would be necessary for the Board to sit in judgement and decide at a duly convened Meeting even about the request of an employee for a loan.Surely this could never have been the intention of the law.However the manner in which the Section has been drafted makes such a conclusion probable.To reduce the hardship caused to Companies by this provision it is necessary to take away from it the provision of loans and guarantees to non-corporate entities.
Further as Section 179 is in the nature of a general provision it has to necessarily yield place to a specifc provision such as Section 186 in deference to the settled principle of law that a specific provision carries greater force than a general provision in the case of competition between the two.Therefore Section 179 should not be allowed to be read in isolation and it is necessary to clarify that where it comes to provision of loans and guarantees to bodies corporate the provisions of Section 186 should prevail.It is also necessary to clarify that Section 179 can be applied only for making non-corporate investments and loans and guarantees to non corporate Entities.
You will no doubt agree,that to the extent possible the Statute should never be allowed to be interpreted differently to suit one's convenience particularly when there is no ambiguity in the Statute.In the instant case,there is absolutely no ambiguity on the point that Section 186 should prevail over the generl provision contained in Section 179.
A suitable clarification on the points enumerated above will go a long way in clearing the cobwebs of doubt that exist in the Corporate world on the above issue.
Hoping for your favourable disposition of the above.
I do hope that you will not take umbrage to a request made by a private citizen.As a member of the profession i thought that i could seek your indulgence.
Best Regards
Ramaswami Kalidas
I wish to introduce myself as a fellow member of the Institute of Company Secretaries of India.I am employed as Vice president and company Secretary of a large listed Company.
I wish to draw your kind attention to the apparent dichotomy in the Companies Act 2013 in the matter of exercise of powers by the Board u/s 179 and Section 186 as regards provision of loans and investments.
I seek indulgence of your precious time and would elaborate as under;
As you are aware Section 179 lists out the powers of the Board which are exercisable by the Board.Subsection (3)sets out the powers that are to be exercised by means of resolutions passed at the meetings of the Board.The power to invest the funds of the company and to grant loans,or give guarantee or provide security in respect of loans are provided by Clauses (e) and (f) respectively in Section 179(3).The proviso under Section 179(3) clarifies that the above two powers can be delegated to a Committee of Directors ,the Managing director or any principal officer of the company on such conditions that the Board may specify. A plain reading of the above Section would suggest that the above two powers, inter alia, are exercisable by the Bord or by a Committee of directors or by the MD subject to such fetters ,as may be imposed by the Board.
As you are aware,Section 179 is very substantially similar in content to Section 292 in the 1956 Act.
The provision of loans and investments by a company is as you are aware regulated by Section 186 which forms by itself a composite code .The Section is also in the nature of a specific provision.The Section corresponds substantially to Section 372A in the 1956 Act although there are subtle differences.Whereas Section 372A regulated, inter alia,the provision of loans,guarantees and securities to any other body corporate ,the contours of Section 186 run wider and encompass within its ambit the provision of loans and guarantees to any person or other body corporate.Thus even the provision of loans to non-corporate bodies uch as firms or to employees of the Company would come within the ambit of the provision.If the Section is to be construed strictly as it should be ,being in the nature of a specific provision,it would be necessary for the Board to sit in judgement and decide at a duly convened Meeting even about the request of an employee for a loan.Surely this could never have been the intention of the law.However the manner in which the Section has been drafted makes such a conclusion probable.To reduce the hardship caused to Companies by this provision it is necessary to take away from it the provision of loans and guarantees to non-corporate entities.
Further as Section 179 is in the nature of a general provision it has to necessarily yield place to a specifc provision such as Section 186 in deference to the settled principle of law that a specific provision carries greater force than a general provision in the case of competition between the two.Therefore Section 179 should not be allowed to be read in isolation and it is necessary to clarify that where it comes to provision of loans and guarantees to bodies corporate the provisions of Section 186 should prevail.It is also necessary to clarify that Section 179 can be applied only for making non-corporate investments and loans and guarantees to non corporate Entities.
You will no doubt agree,that to the extent possible the Statute should never be allowed to be interpreted differently to suit one's convenience particularly when there is no ambiguity in the Statute.In the instant case,there is absolutely no ambiguity on the point that Section 186 should prevail over the generl provision contained in Section 179.
A suitable clarification on the points enumerated above will go a long way in clearing the cobwebs of doubt that exist in the Corporate world on the above issue.
Hoping for your favourable disposition of the above.
I do hope that you will not take umbrage to a request made by a private citizen.As a member of the profession i thought that i could seek your indulgence.
Best Regards
Ramaswami Kalidas
Kalidas Ramaswami
Jul 23, 2015, 4:20:41 AM7/23/15
to rishi.mu...@gmail.com, foru...@googlegroups.com, ranjit agarwal
No. I never got a response.
regards
kalidas
Date: Mon, 20 Jul 2015 07:52:36 -0700
From: rishi.mu...@gmail.com
To: foru...@googlegroups.com
CC: ramaswam...@hotmail.com; echange-pro...@googlegroups.com
Subject: Re: FW: Conflict between Section 179 and Section 186 of the Companies Act,2013-Need for harmonizing the provisions
regards
kalidas
Date: Mon, 20 Jul 2015 07:52:36 -0700
From: rishi.mu...@gmail.com
To: foru...@googlegroups.com
CC: ramaswam...@hotmail.com; echange-pro...@googlegroups.com
Subject: Re: FW: Conflict between Section 179 and Section 186 of the Companies Act,2013-Need for harmonizing the provisions
Hello Mr Kalidas,
did you get a reply from MCA/has any clarification been issued on this subject??
would appreciate a response .
rishi muralimohan
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