Analysis of provisions relating to borrowing and lending of new Companies Act, 2014

1. Presentation on Provisions ofPresentation on Provisions of
Companies Act 2013Companies Act 2013
Relating to Borrowing and LendingRelating to Borrowing and Lending
byby
CS Nalin GanatraCS. Nalin Ganatra
B.com, L.L.B, A.I.I.I, F.C.S
P ti i C S tPractising Company Secretray
307, Golden Space , Sardar Nagar Main Road, Opp. Rajkot Color
Lab, Rajkot
Phone :0281-6641583
Email id: nalinganatra@gmail.com

2. New Concepts in Companies Act 2013New Concepts in Companies Act 2013
Private Company is no more ‘Private’:
New classification of Companies- Small Companies
and One Person Company
Transactions at ‘Arm length’ and ‘Ordinary Course
of Business’
Duties of Director

3. Sec.166Sec.166 -- Duties of DirectorDuties of Director
Director shall act in accordance with the Article of company.
Director of company shall act in good faith in order to promoteDirector of company shall act in good faith in order to promote
the object of company for the benefit of member and interest
of employee company, its employee and shareholder.
Di t h ll i hi d ti ith d d blDirector shall exercise his duties with due and reasonable care,
skill and diligence.
Director of company shall not involve in situation wherep y
he may have direct or indirect interest that conflict with
interest of company.
Director shall not achieve or attempt to achieve undueDirector shall not achieve or attempt to achieve undue
gain or advantage either by himself or through his
relatives, partner and associates.
Director shall not assign his office and any assignment made
shall be void.

4. BORROWINGBORROWING
POWER OF BORROWING
Board of Directors : Up to paid up capital
and free reserves.
SHAREHOLDERS : By way of special
l ti fresolution for
borrowing in excess
of paid up capital and
free reservefree reserve.

5. TYPES OF BORROWINGTYPES OF BORROWING
Borrowing from Banks and Financial Institutions
against the security of the assets of the Company
and/or security/guarantee of other group
associates
CAR loan from banks/finance companiesCAR loan from banks/finance companies
Inter corporate loans from Related Parties and non
related parties
Unsecured loan from Related PartiesUnsecured loan from Related Parties

6. NEW CHANGES FORBORROWINGNEW CHANGES FORBORROWING
Banks and Financial Institutions:
it / t f th C isecurity/guarantee of other group Companies can
not be availed- sec-185.
CAR loan from banks/finance companies- Car to be
purchased in the name of Company only and not in
the name of Director-Sec-187
Inter corporate loans from Group Companies can
not be availed- Sec. 185
Unsecured loan Shareholders and Relatives of
Directors can not be availed- new definition ofDirectors can not be availed new definition of
deposit

7. EXEMPTED DEPOSITSEXEMPTED DEPOSITS
Any amount received from:
Government including Foreign Government.
NRI/PIO (Who is foreign Citizen) Subject to FEMA Provisions.
Banks and Financial Institutions.
Other Companies i.e. Inter Corporate Borrowings.
Director subject to declaration that he has not borrowed thatDirector subject to declaration that he has not borrowed that
amount from others.
Promoter or Relatives of promoters as per stipulation of Bank
Fi i l I tit tior Financial Institution.
Issuance of Secured Debentures.
Issuance of ‘Compulsory Convertible Debenture or Bonds in to
shares within a period of Five Years.

8. COMPLIANCE IN RESPECT OF EXISTINGCOMPLIANCE IN RESPECT OF EXISTING
DEPOSITDEPOSITDEPOSITDEPOSIT
All existing unsecured loan which are now
‘DEPOSIT’ as per new provisions, shall be
repayable on due date or latest by 31/03/2015.
All Companies having any such deposit requires to
file Form DPT3/DPT4 duly certified by Auditor of the
C b f 30/06/2014Company before 30/06/2014.

9. Sec. 179(3) : Power of Board of Director which shall be
exercised at meeting of Board:
a. Calls on shareholders
b Authorize buy back of securities under section 68b. Authorize buy-back of securities under section 68
c. Issue securities, including debentures
d. Borrow moniesd. Borrow monies
e. Invest the funds of the company
f. Grant loans or give guarantee or provide security in
respect of loansrespect of loans
g. Approve financial statement and the Board’s report
h. Diversify the business of the company
i. Approve amalgamation, merger or reconstruction
j. Take over a company or acquire a controlling or substantial
stake in another company;stake in another company;
k. Any other matter which may be prescribed

10. Delegation of Power of Board of
DirectorDirector
Board may delegate power specified in clause (d) to
(f) of Sub section (3) of Section 179 with such
condition as may be specified in resolution passed
at meeting of board to following :
P i i l
Committee
of Director
Principal
officer of
branch
office in
Manager
of Director office in
case branch
of company
Managing
Director
Principal
officer of
Company

11. Sec.180Sec.180 –– Restriction on Power ofRestriction on Power of
BoardBoard
180. (1) : The Board of Directors of a company shall exercise
the following powers only with the consent of the
company by a special resolution, namely
To sell, lease or otherwise dispose of the whole or
substantially the whole of the undertaking of the company
or where the company owns more than one undertaking of theor where the company owns more than one undertaking, of the
whole or substantially the whole of any of such undertakings ;
To invest otherwise in trust securities the amount of compensation
d b l f lreceived by it as a result of any merger or amalgamation;
To borrow money, where the money to be borrowed,
together with the money already borrowed by the companyg y y y p y
will exceed aggregate of its paid-up share capital and free
reserves, apart from temporary loans obtained from the
company’s bankers in the ordinary course of business ;
To remit, or give time for the repayment of, any debt due
from a director.

12. LENDINGLENDING
POWER OF LOAN AND INVESTMENT
Board of :up to sixty per cent of its paid-up
Di t h it l f dDirectors share capital, free reserves and
securities premium account or one
hundred per cent of its free
d i i ireserves and securities premium
account, whichever is more
Shareholders : by way of special resolution
for Loan and Investment in
excess of above limitexcess of above limit.

13. TYPES OF LENDINGTYPES OF LENDING
Loan etc to Directors, Group Companies and Firms.
Loan etc to other Companies and persons.
Investments in the securities of other body
corporate.

14. Sec. 185Sec. 185-- Loan to Director orLoan to Director orSec. 185Sec. 185 Loan to Director orLoan to Director or
other personsother persons
Applicability
All Companies

15. OTHER PERSON MEANS:OTHER PERSON MEANS:
RELATIVE OF DIRECTORS.
DIRECTORS OR RELATIVES OF HOLDING COMPANY.DIRECTORS OR RELATIVES OF HOLDING COMPANY.
FIRM IN WHICH DIRECTOR OR RELATIVE IS A
PARTNER.
ANY PRIVATE COMPANY OF WHICH SUCH DIRECTOR
IS A DIRECTOR OR MEMBER.
ANY BODY CORPORATES (INCLUDES PUBLIC COMPANY
AND LLP) AT GENERAL MEETING OF WHICH >25%
VOTING POWER EXERCISED BYVOTING POWER EXERCISED BY
DIRECTOR/DIRECTORS.
ANY BODYCORPORATE WHICH ‘ACCUSTOMED TO ACT’ANY BODYCORPORATE WHICH ACCUSTOMED TO ACT
IN ACCORDANCE WITH LENDING COMPANY (INDIRECT
CONTROL).

16. SectionSection--185(1)185(1) ––Transactions CoveredTransactions Covered
DIRECT OR INDIRECT LOANS
LOANS REPRESENTED BY BOOK DEBTSLOANS REPRESENTED BY BOOK DEBTS
GUARANTEE
PROVIDING SECURITY IN CONNECTION WITH LOAN
EXEMPTIONSEXEMPTIONS
GIVING LOAN TO M D /W T D : Transactions in theGIVING LOAN TO M.D./W.T.D.:
As a part of Scheme applicable
to all employees or
Transactions in the
‘ordinary course of its
business’ and interest
charged at a rate not lessp y
Scheme approved by members
by way of Special Resolution.
than the Bank Rate decided
by RBI.

17. RuleRule--10 : Exemption10 : Exemption
Loans Guarantee
Guarantee given
Loan made by
Holding
C i
Guarantee given
or security
provided by a
holding
i
Guarantee given or
security provided
by holding
company in
Company to its
wholly owned
subsidiary
company
company in
respect of loan
made to its
wholly owned
company in
respect of loan
made by bank or
financial institution
t it b idi
company wholly owned
subsidiary
company
to its subsidiary
company

18. Sec. 186Sec. 186-- Loan and Investment byLoan and Investment bySec. 186Sec. 186 Loan and Investment byLoan and Investment by
companiescompanies
Applicability
All Companies

19. SecSec..186186((22)) –– GivingGiving ofof LoanLoan oror GuaranteeGuarantee byby
thethe companycompany toto anyany personperson oror bodybody corporatecorporatethethe companycompany toto anyany personperson oror bodybody corporatecorporate
No company shall directly or indirectly:-
Give any loan to
Give any guarantee
or provide security in
Acquire by way of
b i i h
Give any loan to
any person or
other body
corporate;
or provide security in
connection with a
loan to any other
body corporate or
subscription, purchase
or otherwise, the
securities of any other
body corporate.
person;
body corporate.
Not Exceeding Sixty per cent. of its Paid-up Share Capital,
Free Reserves and Securities Premium Account
or
One Hundred Per Cent. of its Free Reserves and Securities
Premium Account, whichever is more.

20. SecSec..186186((33)) –– SpecialSpecial ResolutionResolution isis toto bebe
passedpassed forfor givinggiving loanloan oror guaranteeguarantee byby thethepassedpassed forfor givinggiving loanloan oror guaranteeguarantee byby thethe
companycompany toto anyany otherother personperson oror bodybody corporatecorporate
If it Exceed Sixty per cent. of its Paid-up Share Capital,
Free Reserves and Securities Premium AccountFree Reserves and Securities Premium Account
or
One Hundred Per Cent. of its Free Reserves and Securities
Premium Account, whichever is morePremium Account, whichever is more
Prior approval by means of a special resolution
d t l ti h ll bpassed at a general meeting shall be necessary.

21. Sec.186(4) -
Disclosure to
th b
Disclosure in financial statement the full
particulars of the loans given, investment
made or guarantee given or security
provided and the purpose for which thethe members
In the financial
statements
provided and the purpose for which the
loan or guarantee or security is proposed
to be utilized by the recipient of the
loan or guarantee or security.
Sec.186(5)-
Sanctioned at
board meeting
Unanimous consent of Board and
Prior approval of the public financial
institution where any term loan isg
by passing
resolution and
obtaining
consent of
institution where any term loan is
obtained
Prior approval of public financial
institution is not required if where
public financial
institution
institution is not required if where
aggregate loan and investment does not
exceed prescribe limit u/s 186(2) and
there is no default in the repayment of
loan or payment of interest thereon
Sec.186(6)-
Companies
which cannot
take
loan or payment of interest thereon
SEBI Registered intermediary shall not
take inter-corporate loan or deposits
exceeding the prescribed limit and such
interoperate
loan exceeding
prescribe limit
exceeding the prescribed limit and such
company shall furnish in its financial
statement the details of the loan or
deposits

22. Sec.186(7) –
Rate of giving
Rate of interest shall not be lower than
the prevailing yield of one year threeRate of giving
loan
Sec.186(8) -
the prevailing yield of one year, three
year, five year or ten year Government
Security closest to the tenor of the loan.
Sec.186(8)
Default in
respect of
repayment of
deposit and
Company which is in default of
repayment of any deposits shall not give
any loan or give any guarantee or provide
any security or make an acquisition till suchdeposit and
interest
Sec.186(9) –
any security or make an acquisition till such
default is subsisting.
Every company shall keep a register which
shall contain such particulars and shall be( )
Register to be
maintained
shall contain such particulars and shall be
maintained in such manner as may be
prescribed
Register is required to be kept open for
Sec.186(10) –
Place of
register to be
i t i d
Register is required to be kept open for
inspection at Registered office and
Extracts may be taken there from by any
member and copies thereof may bemaintained
and inspection
of register
member, and copies thereof may be
furnished to any member of the company
on payment of such fees as may be
prescribed.

23. Sec.186(11) - Exemptions
a b
For Loan, Guarantee and Security Acquisition of Securities
Companies
OR
OR
In
OR OR
Banking
or
Companies
engaged in the
business of
financing of
companies or
In
respect of
share
allotted
in Right
Issueor
Insurance
Company
Housing
infrastructural
facilities Registered
NBFC for
landing
and
Issue
Company
whose
principal
business is
theHousing
finance
companies
and
investment
activities
the
acquisition
of
securities

24. RuleRule--11 : Exemption from passing11 : Exemption from passing
Special ResolutionSpecial ResolutionSpecial ResolutionSpecial Resolution
Loans or Guarantee
is given or Securitiesg
provided by
company to:
Wholly owned
Acquisition is
made by holding
company by wayWholly owned
subsidiary
company
Joint
venture
company
company by way
of subscription,
purchase or
otherwise ofotherwise of
securities
Of its Wholly owned subsidiary company

25. Sec.117(3) : Filing of Resolution
with ROCwith ROC
All Special ResolutionAll Special Resolution
Resolutions passed in pursuance of sub-section
(3) of section 179 and(3) of section 179; and
Any other resolution or agreement as may be
ib d d l d i th bli d iprescribed and placed in the public domain.

26. Resolution passed subResolution passed sub--section (3) of Sectionsection (3) of Section
179 include :179 include :
a. To make calls on shareholders in respect of money unpaid
on their shares;
b To authorize buy-back of securities under section 68;b. To authorize buy-back of securities under section 68;
c. To issue securities, including debentures, whether in or
outside India;
d To borrow monies;d. To borrow monies;
e. To invest the funds of the company;
f. To grant loans or give guarantee or provide security in
respect of loans;
g. To approve financial statement and the Board's report;
h To diversify the business of the company;h. To diversify the business of the company;
i. To approve amalgamation, merger or reconstruction;
j. To take over a company or acquire a controlling or
substantial stake in another company;substantial stake in another company;
k. Any other matter which may be prescribed

27. RuleRule--88 ––prescribeprescribe following resolutionfollowing resolution
To make political contributions;
To appoint or remove key managerial personnel (KMP);
To take note of appointment(s) or removal(s) of one level below
the Key Management Personnel;
To appoint internal auditors and secretarial auditor;
To take note of the disclosure of director’s interest and
shareholding;
T b ll i t t h ld b th ( th th t dTo buy, sell investments held by the company (other than trade
investments) which Constituting five percent or more of the paid
up share capital and free reserves of the investee company;p p p y;
To invite or accept or renew public deposits and related matters;
To review or change the terms and conditions of public deposit;
To approve quarterly, half yearly and annual financial
statements or financial results as the case may be.

28. Disclaimer:Disclaimer:Disclaimer:Disclaimer:
•The above communication is on issues relating to New Companies Act, 2013
relating to company law matter which have been prepare for private circulation torelating to company law matter which have been prepare for private circulation to
our Clients. They should not regard them as comprehensive study of the topic
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•All reasonable care have been take in the preparation of presentaion, we accept
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