financial transactions under the companies act, 2013
TRANSCRIPT
Financial Transactions Under the Companies Act, 2013
Financial Transactions Under the Companies Act, 2013
Capital Nature Transactions Revenue Transactions
Capital issues
Loans
Deposits
Commercial Transactions
Related Party Transactions
Non Related Party Transactions
Managerial Remuneration
Dividends
Investments
Guarantees
Borrowings
DebenturesAuditors
Engagements / Services
ECBs
Thank You
Financial Transactions – General
Check the Object Clause of the Memorandum of Association
Impact of activities ultra virus to the provisions of the Memorandum of Association
Personal Liability of Directors
Transactions Void / Voidable
Action against the Directors / the Company
Loan to Directors etc. Section 185 of the Companies Act, 2013
Loan to MD / WTD as per company policy or shareholders’ approval (SR)
Exemptions
Ordinary course of business where the interest charged is not less than RBI bank rate.
Transactions with WOS Guarantee / security to bank for loan to its subsidiary.
Loans made to are utilized for its principal business activities
Save as otherwise provided in the Act, a company is not allowed the followings, directly or indirectly:
Advance any loans (including book debts ); or
Give guarantee or provide security in connection with loan
to directors or any person in whom the director is interested.
Private Limited Companies subject to certain conditions
Who is the person in whom director is interested:
• Directors of the Company or its holding company, their partners and
relatives
• Firms of above directors, their relatives
• Private companies in which such directors are director or member
• Body corporates in which such directors hold more than 25% of voting rights
• Body corporates whose Board, MD, or manager are accustomed to act in
accordance with direction of board or director(s) of lending company
Loan to Directors etc. Section 185 of the Companies Act, 2013
Thank You
Exemptions to Private Limited companies [MCA notification No. F No. 2/11/ 2014- CL V dt. June 5, 2015]
The provisions of Chapter XII, Section 185 does not apply to Private Limited companies satisfying following criteria:
(a) In whose share capital no other body corporate has invested any money
(b) If the borrowing of such company from bank or financial institution or any body corporate is less than twice of its paid up share capital or Rs. 50 crores, which ever is lower
(c) Such company has no default in repayment of such borrowings subsisting at the time of making transaction under this section
Loan to Directors etc. Section 185 of the Companies Act, 2013
Thank You
Exemptions w.r.t. Subsidiaries / Wholly owned subsidiaries
The provisions of Section 185 does not apply :
any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or
any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company.
Provided that the loans made under clauses (c) and (d) are utilized by the subsidiary company for its principal business activities.
Proviso to Sub section (1)
Inserted by the Companies (Amendment) Act, 2015
Loan to Directors etc. Section 185 of the Companies Act, 2013
Loan to Directors etc. Section 185 of the Companies Act, 2013
Can a company give guarantee to a director for loan given to a third party u/s. 185?
Ordinary Course of Business?
Business is different from trade or commerce
Relationship of the activity with the principle business activity of the
Company
Authorisation for the activity in the MoA
Frequency of the activity
Only the guarantees / security in connection with Loan to a director is prohibited. Guarantees to directors in connection with Loan to third parties is not prohibited.
What does the Principal Business means?
The commercial activities undertaken by the Company
As per object clause of the Company
RBI’s 50:50 Asset income criteria
Layers of Investment companies
A company shall unless otherwise prescribed, make investments through not more than two layers of investment companies.
Investment Company means a company whose principal business is the acquisition of shares debentures or other securities
Loans and Investments by a company Section 186, 179 of the Companies Act, 2013]
Nature of Transactions: Loan, Investment in securities of a body corporates,
Guarantees / security in connection with loans.
Limits: Higher of 60% of the paid capital, free reserves and securities premium
or 100% of free reserves (including securities premium).
General Exemption:
• Banking Company, Insurance, Housing Finance, NBFCs, Infrastructure facility
companies (except for investments)
Exemption from Special Resolution:
• Wholly Owned Subsidiaries / Joint Venture Company.
• All other requirements e.g. minimum interest, board approval, register
maintenance etc. applicable to such companies
Loans and Investments by a company Section 186, 179 of the Companies Act, 2013
Whether purchase of debentures by by a company an Investment or a Loan?
Loans and Investments by a company Section 186, 179 of the Companies Act, 2013]
If a company gives a sales tax surety (guarantee) for a company, does it require compliance of Section 186?
Does the investment by a company in Mutual Funds attracts the provisions of Section 186?
X Limited with paid up share capital of 1000 Cr. want to give loan to its subsidiary in which it hold 70% equity. The balance 30 % is held by a director of the Company.
Loans and Investments by a company Section 186, 179 of the Companies Act, 2013]
Can the Board delegate its power to make investments etc. to its principle officer / board committee under section 179?
The loan has to be in the ordinary course of business since the director hold >25% voting rights in the Company.
Audit Committee approval under section 177 since this is a transaction with related party.
Compliances under Section 186 Compliances under Section 184
The provisions of section 179 enable the board to generally delegate its power of investments to the Principle officer / board committee. Since under section 186 there is no specific provision, the Board cannot delegate its power to make investments etc. to its committee or principle officers.
Who is a related party ?
Directors, KMPs of the Company or its Holding company and their relatives;
Firm in which a director, manager or his relative is a partner;
Private company in which a director or manager is a member or director;
Public company in which a director or manager is a director and along with
his relatives holds, two per cent or more of its paid-up share capital;
Any person on whose advice, directions or instructions the board of director
or MD or manager is accustomed to act, except in professional capacity; Holding, subsidiary, fellow subsidiary associate companies or joint ventures.
(Does not apply to private limited companies)
Related Party Transactions[Section 2(76), 177, 188, Rule 15-Chapter XII, F. No. 1/1/2014 dt.5/6/2015]
Paid up share capital [Section (2(64) ] Vs. total share capital [Rule (2(r) of Chapter 1]
Subject CA13 AS18Investing entity with 20% or more investment in subject matter entity other than Holding Companies (associate company under AS 18)
No Yes
CFO and CS and their relatives Yes NoDirectors’ personal interest entities Yes NoInvesting entity for Joint venture No YesHolding, Subsidiaries, fellow subsidiaries and Associates of Pvt. Ltd. companies No Yes
Related Party under Section 2(76) is different from AS 18
Related Party Transactions[Section 2(76), 177, 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015]
Sale, purchase and supply of any goods and material
Availing or rendering of any services
Selling or otherwise dispose off or buying property of any kind
Appointment of any agent for purchase or sale of goods , material, services, property
Leasing of property of any kind
Underwriting the subscription of any securities of the company
Such RP appointment to any office or place of profit in the company, its subsidiary or associate company
Transactions Covered under section 188
Related Party Transactions[Section 2(76), 177, 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015]
Sale, purchase or supply of any goods and material directly or via agent• Limit: 10% of the turnover or 100 Crore whichever is lower.
Selling, buying or disposing of property of any kind directly or via agent• Limit: 10% of the turnover or 100 Crore whichever is lower.
Leasing of property of any kind• Limit: 10% of the turnover or 10% of net worth or 100 Crore whichever is lower.
Availing or rendering of any services directly or via agent• Limit: 10% of the turnover or 50 Crore whichever is lower.
RP appointment to any office or place of profit of company, subsidiary or associate company• Limit: Monthly remuneration of 2.5 lakh.
(Turnover/Net-worth to be taken from previous year audited Financials)Section 134(3)(q), Rule 8(1) , 5(iv) of the Companies (Accounts) Rule 2014]
Related Party Transactions[Section 2(76), 177, 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015]
Related Party Transactions A related party “transaction” is a transfer of resources, services or obligations between a company and a related party, regardless of whether a price is charged. Explanation: A “transaction" shall be construed to include single transaction or a group of transactions in a contract
All material Related Party Transactions shall require approval of the shareholders through special resolution and the related parties shall abstain from voting on such resolutions.
Provided that a transaction with a related party shall be considered material if the transaction / transactions to be entered into individually or taken together with previous transactions during a financial year, exceeds ten percent of the annual consolidated turnover of the company as per the last audited financial statements of the Company.
Related Party Transactions[Section 177, 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015]
Board Approval • Related party + Specified transactions + within the exemption limits
specified.
Board approval + Ordinary resolution• Related Party + Specified transactions + not falling within the exemption
limits specified.
Neither Board approval nor Ordinary resolution• Transaction in ordinary course of business and at Arm’s length.
Approval of Audit Committee(u/s 177 of Companies Act, 2013)• All the transactions (specified or not, in ordinary course or not, at Arm’s
length or not) with the related parties require approval of Audit Committee.
Related Party Transactions[Section 177, 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015]
Transactions with Related Parties u/s. 177Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall inter alia include:
(iv) Approval or any subsequent modification of transactions of the company with related parties
Provided that the Audit Committee may make omnibus approval for the related party transactions proposed to be entered into by the company subject to such conditions as may be prescribed.
Related Party Transactions[Section 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015]
How should a company deal with the following transactions with related parties?
Dividends, Managerial Remunerations, Capital issues, Loans etc.
Thank You
No company shall invite, accept or renew deposits under this Act from public except in a manner provided under Chapter V of the companies Act, 2013.
Deposits includes any receipt of money by way of deposit or loan or any other form by a company but does not include:
(a) Receipts from Government (b) Loans / fin. assistance from banks / PFIs
(c) Commercial papers (d) Inter corporate transactions
(d) Share application money (e) Loan from directors
(f) Secured / compulsory convertible (g) Security deposits from bonds / debentures
employees – upto 1 year salary
(h) Normal advance against goods/services (i) Security deposit under a contract
(j) Advance for supply of capital goods (k) Relatives of directors of Pvt. Of Cos. (w.e.f. Sept 15, 2015)
Deposits[Section 73-76 of the Companies Act, 2013The Companies Acceptance of Deposit Rules 2014]
Thank YouWould the following transactions fall in the definition of Deposit:
Gold Schemes
Unsecured debentures to other companies
The transactions under litigation
Deposits[Section 73-76 of the Companies Act, 2013The Companies Acceptance of Deposit Rules 2014]
Doctrine of Ejusdem Generis to understand the meaning of any other form.
Where specific words are followed by a general expression, the general expression is
limited to the shared characteristics of the specific words, even though the general
expression may ordinarily have a much broader meaning
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Financial Transactions
Under the Companies Act, 2013
Loans to Directors & related entities
185Related Party
Transactions188
Deposits73
Investments Loans/Guaran-tee/security
by companies 186
Borrowings180
Contracts in which directors
interested184
Thank YouCS Rajendra Chopra
Sr. Vice President & Company Secretary Bharti Airtel Limited