critical issues in companies (amendment) act,...

Critical Issues In

Companies (Amendment)

Act, 2017

Gaurav N Pingle,

Practising Co. Secretary, Pune.

Company Law Lecture Series at Thane Chapter of ICSI

Scope of the Presentation –

Companies (Amendment) Act, 2017

Sunday, March 10, 2019Company Law Lecture Series at Thane Chapter of ICSI (2019)

By Gaurav Pingle, Company Secretary, Pune

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Coverage of the sessions – Practical aspects of:

Related Party Transactions

Loans to Directors

Not part of the session:

Private placement of securities,

Director Remuneration,

SBO & Rules made thereunder, etc.

Under Cos. Act, 2013

&

SEBI (LODR) Regulations, 2015

Related Party Transactions

Sunday, March 10, 2019

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Company Law Lecture Series at Thane Chapter of ICSI (2019)


Approval Procedure for RPTs under Cos. Act, 2013

vis-à-vis SEBI (LODR) Regulations, 2015



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Approval of Audit Committee

Approval of Audit Committee (in certaincases – Omnibus Approval)

Approval of Board of Directors

Approval of Shareholders (in certain cases)

Section 177 of Companies Act, 2013

Amended by the Companies (Amendment)

Act, 2017, w.e.f. May 7, 2018.

Audit Committee


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Sec. 177 of the Act



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Every Audit Committee shall act in accordance with the terms ofreference specified in writing by the Board which shall interalia, include:

(iv) Approval or any subsequent modification of transactions of thecompany with related parties:

Provided that the Audit Committee may make omnibus approval forrelated party transactions proposed to be entered into by the companysubject to such conditions as may be prescribed:

Provided further that in case of transaction, other thantransactions referred to in section 188, and where AuditCommittee does not approve the transaction, it shall makeits recommendations to the Board:

Sec. 177 of the Act



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Provided also that in case any transaction involving any amount notexceeding Rs. 1 crore is entered into by a director or officer of thecompany without obtaining the approval of the Audit Committee andit is not ratified by the Audit Committee within three months from thedate of the transaction, such transaction shall be voidable at theoption of the Audit Committee and if the transaction is with therelated party to any director or is authorised by any other director,the director concerned shall indemnify the company against any lossincurred by it:

Conditions:

(a) Transaction condition & amount cap by Co. with related party

(b) Time-limit for ratification,

(c) Indemnification by the Co.

Cos. Act, 2013 – SEBI (LODR) Reg.



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Sec. 177 of the Act: Provisions of this clause (i.e.Approval of Audit Committee) shall not apply to atransaction, other than a transaction referred to in Sec.188 of the Act, between a holding company & its WOS.

Reg. 23 of SEBI (LODR) Reg.: Approval of A/C, A/C(omnibus approval) & shareholders approval shall notbe applicable, where: Transactions is entered intobetween Holding Company and its WOS whose A/csare consolidated with such Holding Co. and placedbefore shareholders at general meeting for approval.

Provisions under Cos. Act, 2013 vis-à-vis

SEBI (LODR) Regulations, 2015

Loans to Directors


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In case of listed Co., whether the transaction of ‘Loan to

directors’ requires approval of Audit Committee



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Reference:

Reg. 2(zc) of SEBI (LODR) Regulations – Related

Party Transaction means a transfer of resources,

services or obligations between a listed entity and a

related party, regardless of whether a price is charged

and a ‘transaction’ with a related party shall be

construed to include a single transaction or a group of

transactions in a contract.

Scheme of Section 185 of Companies Act, 2013:

i. Sec. 185(1): Prohibited transactions

ii. Sec. 185(2): Permitted transactions (T&C*)

iii. Sec. 185(3): Exempted transactions (T&C*)

iv. Sec. 185(4): Penal Provisions

Loans to directors, etc.


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Sec. 185(1) of Cos. Act, 2013



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No company shall, directly or indirectly, advance any loan,

including any loan represented by a book debt to, or give any

guarantee or provide any security in connection with any loan

taken by,—

(a) Any director of company, or of a company which is its

holding company or any partner or relative of any such

director; or

(b) Any firm in which any such director or relative is a partner.

Sec. 185(2) of Cos. Act, 2013



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A company may advance any loan including any loan represented by a book

debt, or give any guarantee or provide any security in connection with any

loan taken by any person in whom any of the director of the company is

interested, subject to the condition that:

(a) Special resolution is passed by the company in general meeting:

Provided that the explanatory statement to the notice for the

relevant general meeting shall disclose the full particulars of the

loans given, or guarantee given or security provided and the purpose

for which the loan or guarantee or security is proposed to be utilised

by the recipient of the loan or guarantee or security and any other

relevant fact; and

(a) Loans are utilised by the borrowing company for its principal business

activities.

Who is ‘any person in whom any of the

director of the company is interested’



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Explanation.—For the purposes of this sub-section, the expression‘any person in whom any of the director of the company is interested’means—

(a) any private company of which any such director is a director ormember;

(b) Any body corporate at a general meeting of which not less than25% of the total voting power may be exercised or controlled byany such director, or by two or more such directors, together; or

(c) Any body corporate, the Board of directors, managing director ormanager, whereof is accustomed to act in accordance with thedirections or instructions of the Board, or of any director ordirectors, of the lending company.

Sec. 185(3) of Cos. Act, 2013



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Nothing contained in sub-sections (1) and (2) shall apply to—

(a) The giving of any loan to a managing or whole-time director—

(i) As a part of the conditions of service extended by the company toall its employees; or

(ii) Pursuant to any scheme approved by the members by a specialresolution; or

(b) A company which in the ordinary course of its business providesloans or gives guarantees or securities for the due repayment of anyloan and in respect of such loans an interest is charged at a rate notless than the rate of prevailing yield of 1 year, 3 years, 5 years or 10years Government security closest to the tenor of the loan; or

Sec. 185(4) of Cos. Act, 2013



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If any loan is advanced or a guarantee or security is given or providedor utilised in contravention of the provisions of Sec. 185:

(i) The company shall be punishable with fine which shall not be lessthan Rs. 5 lacs but which may extend to Rs. 25 lacs;

(ii) Every officer of the company who is in default shall be punishablewith imprisonment for a term which may extend to 6 months orwith fine which shall not be less than Rs. 5 lacs but which mayextend to Rs. 25 lacs; and

(iii) The director or the other person to whom any loan is advanced orguarantee or security is given or provided in connection with anyloan taken by him or the other person, shall be punishable withimprisonment which may extend to 6 months or with fine whichshall not be less than Rs. 5 lacs but which may extend to Rs. 25lacs, or with both.

Some pertinent questions?



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Can Co. give loan to a partnership in which director is apartner?

Can Co. give loan to LLP in which director is a Partner /Designated Partner (having share more than 25%)?

Can Co. give loan to LLP (which ‘Holding Co.’ underCos. Act, 2013)? Can LLP be a holding company under Cos. Act, 2013?

Can subsidiary company give loan to its holdingcompany?

Some pertinent questions?



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Can Co. give loans to HUF in director is a Karta or

Co.-parcener?

Can Co. give loan to Society in which there is a

common director?

Can Society be Holding Company of another company?

Can Co. give a trust in which a director is a trustee?

Any restriction on LLP (as holding Co.) to give

loan to its subsidiary Co. (private / public Co.)?

Points of comparison – RPT under Cos. Act,

2013 Vs RPT under SEBI (LODR) Reg.



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Sr. No. Points of Comparison

1 Related Party

2 Specified Transaction

3 Pricing Parameter

4 Ordinary Course of Business

5 Board Approval

6 Audit Committee’s Omnibus Approval

Points of comparison – RPT under Cos. Act,

2013 Vs RPT under SEBI (LODR) Reg.



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Sr. No. Points of Comparison

7 Trigger point of shareholders’Approval

8 Resolution at shareholders’ meeting

9 Voting Restrictions at shareholders’ meeting

Q & As


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Thank you Thane Chapter of ICSI for the wonderful

opportunity!!

Thank you Members & students for active participation!!

(E): [email protected]

(W): www.csgauravpingle.com

(M): +91 9975565713

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http://www.csgauravpingle.com/

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