SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) (SECOND AMENDMENT) REGULATIONS, 2016

                                                     THE GAZETTE OF INDIA

                                                          EXTRAORDINARY

       

                                                     PART – III – SECTION 4

                                                   PUBLISHED BY AUTHORITY

                                                     NEW DELHI, February 17, 2016

                                SECURITIES AND EXCHANGE BOARD OF INDIA

                                                      NOTIFICATION

                                                 Mumbai, the 17th February, 2016

SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) (SECOND AMENDMENT) REGULATIONS, 2016

No. SEBI/LAD-NRO/GN/2015-16/036.─ In exercise of the powers conferred under section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) read with section 13(8) and section 27(2) of the Companies Act, 2013, the Board hereby makes the following Regulations to further amend the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, namely:-

1. (1) these regulations may be called the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2016.

2. They shall come into force on the date of their publication in the Official Gazette.

3. In the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, after Chapter VI, the following Chapter shall be inserted, namely-

“CHAPTER VI-A CONDITIONS AND MANNER OF PROVIDING EXIT OPPORTUNITY TO DISSENTING SHAREHOLDERS

Applicability.

69A. (1) The provisions of this Chapter shall apply to an exit offer made by the promoters or shareholders in control of an issuer to the dissenting shareholders in terms of section 13(8) and section 27(2) of the Companies Act, 2013, in case of change in objects or variation in the terms of contract referred to in the prospectus.

(2) The provisions of this Chapter shall not apply where there are neither identifiable promoters nor shareholders in control of the listed issuer.

Definitions.

69B. For the purpose of this Chapter:

(a) “Dissenting shareholders” means those shareholders who have voted against the resolution for change in objects or variation in terms of a contract, referred to in the prospectus of the issuer;

(b) “Frequently traded shares” shall have the same meaning as assigned to it in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

(c) “Relevant date” means date of the board meeting in which the proposal for change in objects or variation in terms of a contract, referred to in the prospectus is approved, before seeking shareholders’ approval.

Conditions for exit offer.

69C. The promoters or shareholders in control shall make the exit offer in accordance with the provisions of this Chapter, to the dissenting shareholders, if:

(a) the public issue has opened after April 1, 2014; and

(b) the proposal for change in objects or variation in terms of a contract, referred to in the prospectus is dissented by at least ten per cent. of the shareholders who voted in the general meeting; and

(c) the amount to be utilized for the objects for which the prospectus was issued is less than seventy five per cent. of the amount raised (including the amount earmarked for general corporate purposes as disclosed in the offer document).

Eligibility of shareholders for availing the exit offer

69D. Only those dissenting shareholders of the issuer who are holding shares as on the relevant date shall be eligible to avail the exit offer made under this Chapter.

Exit offer price.

69E. The ‘exit price’ payable to the dissenting shareholders shall be the highest of the following:

(a) the volume-weighted average price paid or payable for acquisitions, whether by the promoters or shareholders having control or by any person acting in concert with them, during the fifty-two weeks immediately preceding the relevant date;

(b) the highest price paid or payable for any acquisition, whether by the promoters or shareholders having control or by any person acting in concert with them, during the twenty-six weeks immediately preceding the relevant date;

(c) the volume-weighted average market price of such shares for a period of sixty trading days immediately preceding the relevant date as traded on the recognised stock exchange where the maximum volume of trading in the shares of the issuer are recorded during such period, provided such shares are frequently traded;

(d) where the shares are not frequently traded, the price determined by the promoters or shareholders having control and the merchant banker taking into account valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such issuers.

Manner of providing exit to dissenting shareholders.

69F. (1) The notice proposing the passing of special resolution for changing the objects of the issue and varying the terms of contract, referred to in the prospectus shall also contain information about the exit offer to the dissenting shareholders.

(2) In addition to the disclosures required under the provisions of section 102 of the Companies Act, 2013 read with rule 32 of the Companies (Incorporation) Rules, 2014 and rule 7 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 and any other applicable law, a statement to the effect that the promoters or the shareholders having control shall provide an exit opportunity to the dissenting shareholders shall also be included in the explanatory statement to the notice for passing special resolution.

(3) After passing of the special resolution, the issuer shall submit the voting results to the recognized stock exchange(s), in terms of the provisions of regulation 44(3) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

(4) The issuer shall also submit the list of dissenting shareholders, as certified by its compliance officer, to the recognized stock exchange(s).

(5) The promoters or shareholders in control, shall appoint a merchant banker registered with the Board and finalize the exit offer price in accordance with these regulations.

6) The issuer shall intimate the recognized stock exchange(s) about the exit offer to dissenting shareholders and the price at which such offer is being given.

(7) The recognized stock exchange(s) shall immediately on receipt of such intimation disseminate the same to public within one working day.

(8) To ensure security for performance of their obligations, the promoters or shareholders having control, as applicable, shall create an escrow account which may be interest bearing and deposit the aggregate consideration in the account at least two working days prior to opening of the tendering period.

(9) The tendering period shall start not later than seven working days from the passing of the special resolution and shall remain open for ten working days.

(10) The dissenting shareholders who have tendered their shares in acceptance of the exit offer shall have the option to withdraw such acceptance till the date of closure of the tendering period.

(11) The promoters or shareholders having control shall facilitate tendering of shares by the shareholders and settlement of the same through the recognized stock exchange mechanism as specified by SEBI for the purpose of takeover, buy-back and delisting.

(12) The promoters or shareholders having control shall, within a period of ten working days from the last date of the tendering period, make payment of consideration to the dissenting shareholders who have accepted the exit offer.

(13) Within a period of two working days from the payment of consideration, the issuer shall furnish to the recognized stock exchange(s), disclosures giving details of aggregate number of shares tendered, accepted, payment of consideration and the post-offer shareholding pattern of the issuer and a report by the merchant banker that the payment has been duly made to all the dissenting shareholders whose shares have been accepted in the exit offer.

Offer not to exceed maximum permissible non-public shareholding.

69G. In the event, the shares accepted in the exit offer were such that the shareholding of the promoters or shareholders in control, taken together with persons acting in concert with them pursuant to completion of the exit offer results in their shareholding exceeding the maximum permissible non-public shareholding, the promoters or shareholders in control, as applicable, shall be required to bring down the non-public shareholding to the level specified and within the time permitted under Securities Contract (Regulation) Rules, 1957.”

Footnote:

1. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 were published in the Gazette of India on 26th August, 2009 vide No. LAD-NRO/GN/2009- 10/15/174471.

2. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 were subsequently amended on:-

(1) 11th December, 2009 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2009 vide No. LADNRO/GN/2009- 10/23/186926.

(2) 1st January, 2010 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2010 vide No. LADNRO/GN/2009- 2010/25/189240.

(3) 8th January, 2010 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2010 vide No. LADNRO/GN/2009- 10/26/190146.

 (4) 13th April, 2010 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2010 vide No. LADNRO/GN/2010-11/03/1104.

(5) 12th November, 2010 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2010 vide No. LADNRO/GN/2010-11/19/26456.

(6) 29th April, 2011 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2011 vide F. No. LADNRO/GN/2011-12/05/13907.

(7) 23rd September, 2011 by Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 vide No. LADNRO/GN/2011-12/24/30181.

(8) 23rd September, 2011 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2011 vide F. No. LADNRO/GN/2011- 12/25/30309.

(9) 30th January, 2012 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2012 vide No. LADNRO/GN/2011-12/34/2499.

(10) 7th February, 2012 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2012 vide No. LADNRO/GN/2011-12/35/3186.

(11) 21st May, 2012 by Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 vide No. LAD-NRO/GN/2012-13/04/11262.

(12) 24th August, 2012 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2012 vide No. LADNRO/GN/2012-13/12/18951.

(13) 12th October, 2012 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2012 vide No. LADNRO/GN/2012-13/18/5391.

(14) 27th February, 2013 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)(Amendment) Regulations, 2013 vide No. LADNRO/GN/2012-13/32/4947.

(15) 26th August, 2013 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)(Second Amendment) Regulations, 2013 vide No. LADNRO/GN/2013-14/19/6422.

(16) 8th October, 2013 by Securities and Exchange Board of India (Listing of Specified Securities on Institutional Trading Platform) Regulations, 2013 vide No. LADNRO/GN/2013-14/28/6720.

(17) 7th January, 2014 by Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 vide No. LAD-NRO/GN/2013-14/36/12.

(18) 4th February, 2014 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2014 vide No. LADNRO/GN/2013-14/44/226.

(19) 23rd May, 2014 by Securities and Exchange Board of India (Payment of Fees) (Amendment) Regulations, 2014 vide No. LAD-NRO/GN/2014-15/03/1089.

(20) 25th August, 2014 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2014 vide No. LADNRO/GN/2014-15/06/1372.

(21) 24th March 2015 by Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2015 vide No. LADNRO/GN/2014-15/24/538.

(22) 5 th of May, 2015 by SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2015 vide No. SEBI-NRO/OIAE/GN/2015-16/003.

(23) 11th of August, 2015 by SEBI (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2015 vide No. SEBI/LAD-NRO/GN/2015-16/007.

(24) 14th of August, 2015 by SEBI (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2015 vide No. SEBI/LAD-NRO/GN/2015-16/008.

(25) 14th of August, 2015 by SEBI (Issue of Capital and Disclosure Requirements) (Fifth Amendment) Regulations, 2015 vide No. SEBI/LAD-NRO/GN/2015-16/012.

(26) 02nd of September, 2015 by Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 vide No. SEBI/LADNRO/GN/2015- 16/013.

(27) 10th of September, 2015 by SEBI (Issue of Capital and Disclosure Requirements) (Sixth Amendment) Regulations, 2015 vide No. SEBI/LAD-NRO/GN/2015-16/18.

(28) 27th of October, 2015 by SEBI (Issue of Capital and Disclosure Requirements) (Seventh Amendment) Regulations, 2015 vide No. SEBI/ LAD-NRO/GN/2015- 16/025.

(29) 21stof January, 2016 by SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2016 vide No. SEBI/ LAD-NRO/GN/2015-16/031.

By Diwakar Agrawal                                        Radical Ideas & Advisory Services                                        MOB.: +91-9911746549

Secretarial Standard

Secretarial Standard 1 (Board Meeting)

The Ministry of Corporate Affairs conferred its approval to Secretarial Standard-1 (relating to Board Meeting) and Secretarial Standard-2 (relating to General Meeting)issued by the Institute of Company Secretaries of India (ICSI). No other country of the world except India has yet adopted the Secretarial Standards (SS). The Board of Directors play an imperative role in the functioning, governing, progression of an organization. Therefore, it is required that it shall function in such a manner, it can satisfy the requisite of various stakeholders. As per section 118(10) of the Companies Act, 2013, every company has to follow Secretarial Standards issued by the ICSI. Company Secretary either in employment or in practice has to ensure that the Company or their clients has complied with the Secretarial Standards provisions. Therefore, we can say that massive responsibility is imparted on the Company Secretaries.

The various provisions of Secretarial Standard-1 are enlisted below:

Applicability: Secretarial Standard 1 (SS-1) applies to:

All meeting of the Board of Directors of the Companies and committees of the Board thereof held on or after 1st day of July, 2015.

Non Applicability: One Person Company (OPC) consists of only one (1) director on the Board. The MCA vide its notification dated 5^th June, 2015 has exempted section 8 companies (companies as per section 8 of the Companies Act, 2013) to comply with the provision of section 118 except the recording of Minutes within 30 days of the meeting.

Key Definition’s: Some of the important definitions introduced by SS are as under:

1. Calendar Year: Period of 12 months as per Gregorian calendar i.e. starting from 1st January and ends on 31st December;

2. Invitee: means any person other than Director and Company Secretary, who attends a meeting by invitation;

3. National Holiday: It includes 26^th January i.e. Republic Day, 15^th August i.e. Independence Day, 2nd October i.e. Gandhi Jayanti and such other day as may be decided by the Central Government;

4. Timestamp: It means the current time of an event that is recorded by an electronic device (secured computer system) to recognize the time when a file is printed or any data is added, removed, modified, sent or received by the receiver. Example: Saturday 30th January, 2016, 6.00 P.M.

Key Highlights of various provisions

A. Convening of a Board meeting

1. Any director and the Company Secretary, if any, of the Company may, at any time, summon a meeting of the Board on any day excluding a National Holiday. It means a Board Meeting can be held on Sunday also (if it’s not a National Holiday).

2. The Meeting can be called at any time, and it can be held outside India also.

3. Every meeting of the Board of Directors held on or after 01s July, 2015 shall be consecutively number and number can be similar to 07/BM/2015-16 (07 indicates number, BM indicates Board Meeting(BM) and 2015-16 indicates the year of the BM).

B. Notice of Board/Committee Meeting

o    Mode of Sending Notice: Notice in writing of Every Board/Committee Meeting along with Agenda and Notes on Agenda shall be given to every director by hand or by speed post or registered post or by the courier or facsimile or by email or by any other electronic means. It shall be sent to the postal or email address registered by the Director with the Company. Proof of sending of Notice and its delivery shall be maintained by the Company.

o    Person Responsible for sending Notice: Notice shall be issued by the Company Secretary or where there is no, any Director or any other person duly authorized by the Board.

o    Contents of Notice: Notice shall specify the serial Number, day, date, time and full address of the venue of the Meeting.

o    Time period of sending Notice: Notice shall be given at least 7 days before the date of the meeting. In case it is sent through speed post or by registered post or by courier, an additional 2 days shall be added.

o    Notice of Adjourned Meeting: Notice of adjourned Meeting shall be given to all Directors including those who did not attended the original Meeting at least 7 days before the date of Meeting unless the date of adjourned Meeting is decided at the Meeting.

C: Notes on agenda of Business

Each item of business requiring approval at the meeting shall be supported by a note. Each item of business to be taken up shall be consecutively numbered. Any Notes shall contain the following; Details of the proposal; Relevant material fact; Scope and implication of the proposal; and Nature of interest or concern, if any, of the Director in the proposal.

D: Frequency of Board Meeting

The Board of Directors of every company except Small, One person and Dormant Company shall meet at least once in every calendar quarter, so that maximum gap between the two Board Meeting should not exceed 120days and so that 4 board meeting should have been held.

E. Quorum

The quorum of a Board Meeting shall be 1/3^rd of the total strength of the Board or 2 Directors whichever is higher. Any fraction contained in the calculation of quorum shall be rounded off to the next one. If the Number of Interested Director exceeds or is equal to two-thirds of the total strength, the remaining directors present at the Meeting, being not less than 2, shall be the Quorum. Quorum shall be present throughout the meeting. Interested director shall not present in the meeting either by physical or electronic mode, during discussion and shall not vote on such item.

F. Meeting of Committees of Board

1. All the members of the Committee shall be to present in a meeting to constitute the quorum.
2. The Committee members can also have participation through Electronic mode.
3. There is no frequency to hold committee meetings.

G. Attendance of Meetings

1.     Every company shall keep separate attendance register of the Board and Committee meeting. The pages of attendance register shall be serially numbered. It shall contain the following:

Serial Number; Date of meeting; Name of the committee in case of committee meeting; Place of the meeting; Time of the meeting; Name and signature of the Director present and the Company Secretary who is in attendance and also of the person who attends the Meeting by invitation.

2.    In case of Director attends a Meeting by Electronic Mode; the Chairman shall confirm the attendance of Such Directors by taking a roll call at the commencement of the Meeting. The Director shall state the full name and location form where he is participating. The attendance register of Director participating through electronic mode shall be deemed to be signed by him, if their attendance is recorded by the Chairman or the Company Secretary.

3.    The attendance register shall be maintained at the Registered office of the Company unless permitted by the Board to be maintained at any other place. It is open for the inspection by the director. The Company Secretary in practice or the Secretarial Auditor appointed by the Company can also inspect the attendance register for the performance of his duties. The Member of the Company can’t inspect the attendance register of the Board or Committee Meetings. The attendance register shall be preserved for a minimum period of 8 Financial Year and thereafter it can be destroyed with the approval of the Board. It shall be kept under the Custody of Company Secretary, if any.

H. Chairman

1.    The Chairman of the Company shall be the Chairman of the Board. In case the Company does not have a Chairman then the Existing Directors may elect one of themselves to be the Chairman of the Board.

2.    A member of the Committee appointed by the Board or elected by the Committee as the Chairman of the Committee, shall conduct the Meeting of the Committee.

I. Minutes of Meeting

o    Maintenance of Minute: Every company shall keep a Separate/distinct Minutes Book of all Board and Committee Meeting. It can be maintained in physical or in electronic form with Timestamp. Each pages of the Minute Book shall be consecutively numbered. Minute shall not be pasted or attached to the Minute Book, or tampered with in any manner. If maintained in loose- leaf form, shall be bound periodically depending on the size and volume and coinciding with one or more financial years of the Company. It shall be maintained at the Registered Office of the Company or such other place as may be approved by the Board.

o    Contents of Minute: Minute shall state, at the beginning the serial number and type of the Meeting, name of the Company, day, date, venue and time of the Commencement and conclusion of the Meeting. In case a meeting is adjourned, the Minute shall be entered in respect of the original as well as the adjourned Meeting. It shall contains the name of the Directors present though physical or Electronic Mode, the Company Secretary who is in attendance at the meeting and invitees, if any, including for any specified items, if any. The name of the Directors shall be itemized in alphabetical order or in any logical manner, but in either case starting with the name of the person in chair.

o    Recording of Minute: Minute shall contain a fair and correct summary of the proceeding of the Meeting. The Company Secretary, if any, shall record the proceeding of the meeting. In case the Company does not have a Company Secretary then it shall be recorded by any other person duly authorized by the Board or by the Chairman. The Chairman shall ensure that the proceedings of the meeting are correctly entered. Minute shall be written in clear, concise, third person and past tense. Resolution shall however be written in present tense.

o    Circulation of draft Minutes Book: Within 15 days from the date of the conclusion of the Meeting of the Board or Committee, the draft Minutes thereof shall be circulated by hand or by speed post or by registered post or by the courier or by email or by any other registered electronic means to all the members of the Board or Committee for their comment. If it is sent by speed post or by registered post or by courier, an additional two days may be added for delivery of the draft Minutes.

o    Comments by Director on draft Minute: The director, whether present at the meeting or not, shall communicate their comments, if any, in writing within 7 days from the date of circulation. If any director communicates his comments after the expiry of 7 days, the chairman shall have the discretion to consider such comments. In case of no comments from the director, it shall be deemed to be approved by such director.

o    Entry in the Minute Book: Minute of the original or adjourned meeting, if any, shall be entered in the Minute Book within 30 days from the date of the respective meeting. The entry in the Minute Book shall be recorded by the Company Secretary of the Company, in case the Company does not have a Company Secretary, it shall be recorded by any other person duly authorized by the Board or by the Chairman.

o    Record of Entry in the Minute Book: Minute once entered in the Minute Book, shall not be altered. Any alteration in the Minute Book shall be made only by way of express approval of the Board at its subsequent Meeting in which Minute are sought to be altered.

o    Signing and dating of Minute: Minutes of the Board Meeting shall be signed and dated by the Chairman of the Meeting or by the Chairman of the next Meeting. Minute of the previous Meeting may be signed either by the Chairman of such meeting at any time before the next Meeting is called is held or by the Chairman of the next Meeting. The Chairman shall initial each page of the Minutes Book, sign the last page and append to such signature the date and the place where he has signed the Minutes.

o    Circulation & Inspection of Minutes: A copy of the signed Minutes certified by the Company Secretary or where there is no Company Secretary, by any of the Directors shall be circulated to all the Directors within 15 days after these are signed. A Director is entitled to inspect the Minutes of a Meeting held before the period of his Directorship in the Company and also entitled to inspect the Minutes of the Meeting held during his period as Directorship, even after he ceases to be Director. A Member of a company is not entitled to inspect the Minutes of the Meeting of the Board.

o    Preservation of Minutes and other Records: Minutes of all Meeting (Board and Committee) shall be preserved permanently in physical or in electronic form with Timestamp. Office copies of Notices, Agenda and Notes on Agenda and other related papers shall be preserved in good order in physical or in electronic form for as long as they remain current or for eight financial years, whichever is later and may be destroyed thereafter with the approval of the Board.

o    Safe Custody of Minute Book: Minute Book shall be kept in the safe custody of the Company Secretary. In case there is no Company Secretary, it shall be kept in the custody of any director duly authorized by the Board.

Conclusion: Through the induction of Secretarial Standard-1, now there is a complete clarity on Calling of Board Meeting, Issuance of Notice along with the relevant notes and agenda, Conduction of Board Meeting, how the Directors can participate, what extra facilities’ they can get, what they have to disclose, within what time they will get the draft Minutes of the proceeding of the Meeting, what they have to do after receiving of the draft Minutes and within how much time they will get the certified copies of the Minutes.

Written By Diwakar Agrawal (Corporate Cunsultant)

LENDING AND BORROWING BY CORPORATE

Section 185 and Section 186 are sections that companies have to deal with on a regular basis. The snapshot of all the compliances required to be undergone for lending and borrowing are summarised for reference purpose.

GIVING OF LOANS/ GUARANTEE/ SECURITY

Relative means –

a. Members of HUF

b. Husband / Wife/ Father/ Mother

c. Brother/ Sister (+ Step bro/sis)

d. Son/ Daughter and their Spouse

Section 185 prohibits loans (incl. Book debt)/ guarantee/ security to Director or person in whom he is interested as follows –

a. Any Director of the company

b. Any Director of Holding company

c. Partner / Relative of (a) and (b) above

d. Firm in which Director (a)/ (b) or Relative is partner

e. Private company in which Director (a)/(b) is Director or Shareholder

f. Body corporate – 25% voting power in general meeting exercisable by Director singly or jointly with other Directors

g. Body corporate – whose Board, MD, Manager accustomed to act as per Director(s) or Board of the lending company

Exemptions available –

a. Loan to MD/ WTD as part of conditions of service extended to all employees, or, as per scheme approved by members by special resolution

b. To company providing loans in ordinary course of business provided minimum interest @ RBI’s Bank Rate has to be charged

c. Loan/ guarantee / security to WOS – loan to be utilised for principal business activity only

d. Guarantee / security to other than WOS - loan to be utilised for principal business activity only

Punishment for contravention –

a. Giver – Minimum fine of Rs. 5,00,000/- upto Rs. 25,00,000/-

b. Taker – Imprisonment upto 6 months or Minimum Fine Rs. 5,00,000/- upto Rs. 25,00,000/- or Both

Private companies are exempt from section 185 if all the 3 conditions are met –

a. Does not have a body corporate shareholder

b. Borrowing is less than twice paid up share capital or Rs. 50 crore whichever lower

c. No default in repayment of borrowing at the time of entering into such transaction

CONDITIONS FOR GIVING LOANS/ GUARANTEE/ SECURITY/ ACQUISITION

A. Not more than two layers of investment companies shall be used to invest funds of the company

B. Overall limits on loans/ guarantee/ security/ acquisition –

1. 60% (Paid up share capital + Free Reserves + Securities Premium Account), or,
2. 100% (Free Reserves + Securities Premium Account) whichever is higher.

C. Beyond limits as above, prior approval by special resolution is required, specifying the limit upto which the Board can give loan/ guarantee/ security/ acquire. Not required for L/G/S to WOS/JV or acquisition of securities of WOS.

D. Unanimous board resolution required

E. Prior approval of PFI required if term loan is subsisting provided that it is not required if L/G/S/A is within limits of 60% or 100% and there is no default in repayment

F. Rate of interest cannot be lower than prevailing yield of one/ three/ five/ ten year Govt. security closest to the tenure of the loan

G. No L/G/S/A by company which is in default of repayment of any deposit or interest thereon

H. Register to be maintained in MBP – 2 format and disclosure in financial statement, Entry in register within 7 days authenticated by company secretary/ person authorised by Board

I. Punishment for contravention –

a. On company – Minimum fine of Rs. 25,000/- upto Rs. 5,00,000/-

b. Every Officer in default – Imprisonment upto 2 years AND Min. Fine Rs. 25,000/- upto Rs. 1,00,000/-.

FILING REQUIREMENT

A. Decisions of lending and borrowing (both) are to be taken by the Board of Directors at a meeting as per section 179(3) of the Companies Act, 2013.

B. As per Section 117, decisions taken by the Board as specified under section 179(3) are required to be filed in Form MGT – 14.

C. Private companies have been exempted from filing resolutions passed under section 179(3) vide Exemption Notification – MGT – 14 need not be filed.

D. The power to lend and borrow u/s. 179 can be delegated by the Board by resolution passed at meeting to the MD, Committee, Manager, Principal officer, Branch’s principal officer – Delegation resolution to be filed in MGT – 14.

E. Exercise of delegated power by MD, Committee etc. need not be filed.