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Friday, August 18, 2017
You are here : INTER CORPORATE LOANS UNDER COMPANIES ACT, 2013

INTER CORPORATE LOANS UNDER COMPANIES ACT, 2013

Section 186 of the Companies Act, 2013 has come up with the concept of loan and investment by the company. The new Act provides that inter-corporate investments not to be made through more than two layers of investment companies. Any amount received by a company from another company is not a deposit as per the provisions of Companies (Acceptance of Deposit) Rules, 2014. It may be a loan and generally termed as Inter-Corporate Deposits, yet they are not deposits under the Companies Act 2013.


The provision of Section 186 of the Companies Act, 2013 shall not have any effect in the below mentioned cases-

    (i) a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers as per the laws of such country
    (ii) a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force.


A Public Company can accept loan / deposit from any other company and would not be deposits under the Companies Act 2013, however, it cannot accept monies from another company (other than its wholly owned holding company) if-

    (i) The lending company’s director individually or along with one or more of its directors exercises or controls not less than 25% of its voting rights or
    (ii) It’s Board of Directors, MD or Manager is accustomed to act in accordance with the directions or instructions of the Board, or any director or directors of the lending company.


A Private Company can accept loan from any other company and would not be deposits under the Companies Act 2013, however, it cannot accept monies from another company (other than its wholly owned holding company) if-

     (i) The lending company’s any director is a director or member of the company

    (ii) The lending company’s director individually or along with one or more of its directors exercises or controls not less than 25% of its voting rights or

    (iii) It’s Board of Directors, MD or Manager is accustomed to act in accordance with the directions or instructions of the Board, or any director or directors of the lending company.


However, if the lending company is a private company then with effect from 5th June 2015 it can give loan to another private company even if its director is the director or member of the recipient company if three conditions has been satisfied by the lending company which are mentioned below. Mca has come with a exemption notification on 5 June, 2016 which provides exemption to private companies to take loans-

    (a) In the lending company’s capital no other body corporate has invested any money i.e., it’s shareholder does not include any body corporate.

    (b) If the borrowings of the lending company from banks or financial institutions or anybody corporate is less than twice its paid up capital or Rs. 50 crores, whichever is lower and

     (c) Lending company is not in default in repayment of such borrowings subsisting at the time of giving such loan.


Section 186 is an enabling section. Companies can lend, provide guarantee or security subject to the limits of and in compliance with section 186. Section 186 of the companies act, 2013 to all specified transactions.


As per the provisions of Section 186(2) of the Act, no Company shall directly or indirectly give any loan to any person or other body corporate, give any guarantee or provide security in connection with a loan to any other body corporate or person and acquire by way of subscription, purchase or otherwise, the securities of any other body corporate, exceeding 60% of its paid-up share capital plus free reserves plus securities premium account or 100% of its free reserves plus securities premium account, whichever is more. Section 186(3), empowers a Company to give loan, guarantee or provide any security or acquisition beyond the limit but subject to prior approval of members by a special resolution passed at a general meeting.

PENALTY FOR CONTRAVENTION
Every Company which contravenes the provisions of this Section shall be liable to a penalty which shall not be less than Rs. 25000/- but which may extend to Rs. 5,00,000/-. Every officer of the Company who is default shall be punishable with imprisonment for a term which may extend to two years and fine which shall not be less than Rs. 25000/- but which may extend to Rs. 1,00,000.

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