The provisions of
section 186 of the Companies Act 2013(the Act) apply to giving
loan/guarantee/security by the Company to any person.
Section 186 of the Act prescribes
certain conditions to be complied with while giving loans/guarantee/security.
Pursuant to Section
186(2) of the Act, the amount given by way of loan/guarantee/security should
not exceed the following limits:
- 60% of its paid-up share capital plus free reserves plus securities premium account; or
- 100% of its free reserves plus securities premium account
Pursuant to the
Companies Amendment Act, 2017, an explanation is inserted in this subsection
which states that “person" does not include any individual who is in the
employment of the company for this sub-section.
It means that, loan given to employees should not be considered while
calculating aforesaid limits. The company is required to comply with other
requirements under section 186 of the Act with respect to a loan to employees as
the employees will not be covered for the Sub-section (2) only.
One of the requirements
under section 186(7) of the Act is that the Company is required to charge
interest on the loan at the rate not less than the prevailing yield of one
year, three years, five years or ten years Government Security closest to the tenor of the loan. And therefore, the Company while giving a loan to employees
are also required to comply with this provision.
Although loan provided
to employees will not be considered while calculating limits, the Company is
required to comply with other conditions such as charging interest as per
section 186(7) while giving loan to employees.
The violation of
provisions of section 186 of the Act is non-compoundable offence.
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