Thank you for your response
Our representative will get in touch with you shortly.
When the Companies Act, 1956 was in force, public companies were permitted to grant loans, guarantees, and securities as long as they obtained prior permission from the Central Government to do so. The companies used to exercise a practice of borrowing funds and passing them to subsidiaries and other associate companies through inter-corporate loans. However, when it came to compliance with the terms of the loan agreement, the holding companies used to take a step back, leaving the subsidiaries in the lurch. In order to put a stop to the exploitation of the subsidiaries, Section 185 of the Companies Act, 2013 came into force.
Section 185 of the Companies Act, 2013 lays down certain restrictions with regard to the granting of loans to Directors in order to monitor their working.
The original Section 185 prohibited the companies from advancing any loan and/or giving any security or guarantee in relation to the loan taken by the Directors of the company or any other person in whom the Director is interested. If found guilty of non-compliance, penalties were allowed only to companies or to any recipient to whom such a loan, security, or a guarantee is provided.
Section 185 (as amended by the Companies (Amendment) Act, 2017):
In any case where Section 185 is not complied with:- – The Lending Company will be punishable with a fine not less than Rs. 5 lakh which can be extended to Rs 25 lakh (maximum).
– Any officer in default will be punishable with imprisonment for a term which may extend to 6 months or fine which shall not be less than Rs.5 lakh but which may extend to Rs.25 lakh.
– The recipient of the loan will be punishable with imprisonment which may extend to 6 months or with fine which shall not be less than Rs.5 lakhs but which may extend to Rs.25 lakhs or with both.
Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.