1. R INVESTOR PROTECTION COMPANIES ACT 2013 FCA Nidhi Nsassociates.ca@gmail.com Founder Go-Training Delhi www.go-training.in

2. LOANSLOANS& INVESTMENTS Sec. 185 186 :::: Loan to Directors Loan and Investment by Company FCA Nidhi Srivastav www.go-training.in

3. To Directors OR To Any Other Company Company in which director are interested Sec. 185 Sec. 186 FCA Nidhi Srivastav www.go-training.in Loans by Company

4. Section 185: A company cannot, directly or indirectly, give any loan, including loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection person. withanyloantakenby himorsuchother FCA Nidhi Srivastav www.go-training.in

5. ‘any other person in whom director is interested’ : (a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director; (b) any firm in which any such director or relative is a partner; (c) any private company of which any such director is a director or member; (d) any body corporate at a general meeting of which not less than 25% of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or (e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company. FCA Nidhi Srivastav www.go-training.in

6. Sec. 185 Summary Other than Individual Partnership Firm (If Director or Relative of Director is a partner) Body Corporate (If BOD, MD or manager Director accustomed to act as per directions of director/s, board of lending co. Pvt. Ltd. Co. (If Director is a director or member) Director of Holding Co. Any Partner of Director Any Relative of Director Body Corporate (If Director/s having atleast 25% voting power) FCA Nidhi Srivastav www.go-training.in Subject to EXCEPTIONS Prohibition on Loan by Company To

7. Loan to Managing or Whole time Director LGS by Holding Co. to Wholly Owned Subsidiary Co. GS by Holding Co. to Subsidiary Co. in respect of loan by Bank or FI LGS by a company in the ordinary course of business FCA Nidhi Srivastav www.go-training.in As a part of condition of service to all employees OR Pursuant to scheme approved by members in SR Provided that such Loans are utilised by the subsidiary for its principal business activities Interest is charged at a rate not less than bank rate Exceptions of Sec. 185

8. Directorship/ FCA Nidhi Srivastav www.go-training.in 1) Appoint New i.e Uncommon Director 2) Resign Common Director from either Company (in which Director is not share holder) 3) Change the Shareholding in such a way that no Director of Borrower / Lender are shareholder of other company.(i.e. Director Should hold the share in which they are director.) 4) Shares/Directorship Held by Relatives of the Directors not considered. Change in Shareholding Convert Lender & Borrower to LLP Convert Borrower Company to Limited Company (If Common Directors hold Less Than 25% of Borrowing company) Section 185 : Practical Solutions

9. BORROWER LENDER COMPANY IMPRISONMENT UPTO 6 MONTHS OR 5 LACS TO Rs. OR BOTH FINE RS.5 LACS TO 25 LACS FINERs.25 LACS FCA Nidhi Srivastav www.go-training.in Penalties for Contravention of Sec. 185

10. UptoUpto OROR FCA Nidhi Srivastav www.go-training.in Alternate Route : If Loan Exceeds the above threshold limit, then Prior Approval by Special Resolution at General meeting is MUST. (Subject to Exceptions) 100% of Free reserves (+) Security Premium 60% of Paid up Capital (+) Free Reserves (+) Security Premium Higher of 1.Give loan to any person OR body corporate 2. Give guarantee or provide security in connection with loan 3. Purchase subscription, purchase securities NO Investments through more than two layers of Investment Co. LOANS & INVESTMENTS BY COMPANIES Section 186

11. Exceptions to PriorApproval No Prior Approval required: ------ L G S to WOS L G S to Joint Venture Investment (Acquisition) by holding company by wayby way of subscription,WOSsubscription,WOS purchaseorotherwiseofsecurities FCA Nidhi Srivastav www.go-training.in

12. Exception to Sec. 186 (a) L G S by a banking company or insurance company or a housing finance company in the ordinary course of its business or a company engaged in the business of financing of companies or of providing infrastructural facilities ; (b) to any acquisition – (i) made by a non-banking financial company registered under chapterIII-B of the RBI Act 1934 and whose principal business is acquisition of securities ; Provided that exemption to non-banking financial company shall be in respect of its investment and lending activities (ii) made by a company whose principal business is the acquisition of securities ; (iii) of shares allotted in pursuance of clause (a) of sub-section (1) of section 62. FCA Nidhi Srivastav www.go-training.in

13. Disclosure in Financial Statement Full particulars of the L G S I and Purpose for whichitSitS is proposedtotobebeutilisedbyby theborrower-LG(NotI)I). FCA Nidhi Srivastav www.go-training.in

14. Unanimous Board Resolution Sec. 186(5) No investment shall be made or loan or guarantee should be given unless the resolution is passed at board meeting with unanimous vote. Interested Directors cannot vote in a resolution. All Directors present at the meeting must vote in favour of the resolution. This is an exception to general provision that all decisions of Board are by simple majority. Thus, prior and unanimous approval of board of directors is must and circular resolution or committee’s approval is not sufficient as provided in sec. 179 (3) (e & f). However, the board of directors unanimously can approve the upper limit for investment and can delegate the powers to Committee / MD, Manager specifying loan, nature and purpose, for making investment within that prescribed limit. FCA Nidhi Srivastav www.go-training.in

15. Prior approval of Public Financial Insti. (PFI) Prior approval of Public Financial Institution where any tem loan is subsisting if (i) Company has made default in repayment ofloan or interest to PFIOROR (ii)The aggregate of LGSI along with proposed exceedsthelimitprescribed insec.sec.186(2) FCA Nidhi Srivastav www.go-training.in

16. SEC 186 – Loan & Investment by company No company, which is registered under section 12 of the SEBI Act 1992 and covered under such class or classes companies as may be prescribed, shall take inter- corporate loan or deposits exceeding the prescribed limit and such company shall furnish in its financial statements the details of the loan or deposits. of No loan shall be given under this section at a rate of interest lower than the prevailing yield of one year, three year, five year or ten year government security closet to the tenure of the loan.. FCA Nidhi Srivastav www.go-training.in

17. Defaulter in Repayment No company which is in default in the repayment of deposits accepted before or after the commencement of this Act or in payment of interest thereon, shall give any loanany loanor give any acquisition guarantee or provide any security till such default is subsisting. or makemakeanan FCA Nidhi Srivastav www.go-training.in

18. Register of L G S I Every company to keep a register which shall contain the particulars. To keep register at the registered office of the company and (a) shall be open for inspection at such office ; and (b) extracts may be taken therefrom by any member, and copies thereof may be furnished to any member of the company on payment of fees as prescribed in the Articles not exceeding Rs. 10 per page. FCA Nidhi Srivastav www.go-training.in

19. Penalty u/s. 186 Company: Fine : Rs. 25,000 to Rs. 5 lakhs Officers Imprisonment :upto 2 yearsand fineRs.Rs.25,000 to Rs. 5 lakhs FCA Nidhi Srivastav www.go-training.in

20. RELATEDRELATEDPARTY TRANSACTIONS FCA Nidhi Srivastav www.go-training.in

21. RelatedRelatedParty Co. Act13Co. Act13 FCA Nidhi www.go-training.in l Definition of Related Party : Sec. 2(76) Director, KMP or their relative Firm in which a director or manager or his relative is a partner Private Company in which director or manager is a member or director Public Company in which director or manager is a director AND holds along with his relatives > 2% of its paid up share capital Any Body Corporate whose BOD, MD or manager is accustomed to act in accordance with advise, director or manager (Except in professional capacity) Any person on whose advise, directions, or instructions, a director or manager is accustomed to act. (Except in professional capacity) Any Company which is H, S or A of Company or Subsidiary of H Co. Director, KMP of the holding company or relative 2(77) : Relative : Members of HUF, Husband or Wife, As may be prescribed Father(incld S-F), Mother (incld S-M), Brother (incld S-B), Sister (incld S-S) Son (incld S-S), Son’s Wife, Daughter, Daughter’s Husband

22. Related Party AS - 18 (a) enterprises that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the reporting enterprise (this includes holding companies, subsidiaries and fellow subsidiaries); (b) associates and joint ventures of the reporting enterprise and the investing party or venturer in respect of which the reporting enterprise is an associate or a joint venture; (c) individuals owning, directly or indirectly, an interest in the voting power of the reporting enterprise that gives them control or significant influence over the enterprise, and relatives of any such individual; (d) key management personnel and relatives of such personnel; (e) enterprises over which any person described in (c) or (d) is able to exercise significant influence. This includes enterprises owned by directors or major shareholders of the reporting enterprise and enterprises that have a member of key management in common with the reporting enterprise. FCA Nidhi Srivastav www.go-training.in Relative – in relation to an individual, means the spouse, son, daughter, brother, sister, father and mother who may be expected to influence, or be influenced by, that individual in his/her dealings with the reporting enterprise.

23. CA Chintan Patel SEBI Related Party Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party, directly or indirectly, in making financial and/or operating decisions and includes the following : -Related party u/s. 2(76) -Entity and company are members of same group (each parent, subsidiary, fellow sub) -One entity is Asso./JV of other entity or of a member of a group of other entity - Both entities are JV of same third party - One entity is JV of third entity and other entity is Asso. Of third entity - Entity is post employment benefit for the benefit of employees of co. Or related co. - Entity Controlled/Jointly Conrolled by IND - IC has significant infl. over entity or parent - Related party u/s. 2(76) - Control or joint control or significant influence over Co. (IC) - KMP of company or parent EntityIndividual (IND)

24. Related Party Transactions? Sec.188 N Y N Y Y Approval N N Y Director’s Reportto discloseeach Related Party Transaction (irrespectiveof itsof its arms length nature) along with justification for entering into same. Approval of Sh. Holders by Sp. Resol. AND Board Approval Prior Approval of Board Transaction > Specified Amt or PC > Rs. 10 Cr? No Prior Transactions in ordinary course of business and Arms Length Pricing? Sec. 188 Not Applicable Is it Specified Transaction?

25. Y Is the Company Having Paid up N share Capital >Rs. 10 Cr.? FCA Nidhi Srivastav www.go-training.in Appointment To office or place of profit In Co., Subs, Asso > Rs. 2.5 Lacs p.m. Underwriting Remuneration for underwriting subscription of Sec. or derivative > 1% of Net Worth Property Buying, selling, disposing Directly or through Agent > 10% of Net Worth Leasing of Property > 10% of Net Worth Services Availing or rendering Directly or through Agent > 10% of Net Worth Goods or Material Sale, purchase or Supply Directly or through Agent > 25% of Annual Turnover Prior Approval SR Required ONLY IF Prior Approval SR Required Prior Approval of Company by Special Resolution for Specified but not Arms Length Transactions

26. SpecifiedTransactions any shares in or derivatives whether a price is Co. Act 1956Co. Act 2013SEBI Listing Agreement Sale, purchase or supply of any goods, material or services -Sale, purchase or supply of any goods or material -Availing or rendering of any services Transfer of resources, services or obligations between a company and a related party, regardless, of Underwriting the subscription of any shares in or debenture. Underwriting the subscription of thereof. Selling or otherwise disposing of, or buying, property of any kind charged. Leasing of property of any kind Appointment of any agents for purchase or sale of goods, materials, services or property; Related party’s appointment to any office or place of profit in the company, its subsidiary company or associates

27. Related Party Transactions? SEBI N Y N Y Material : if the transaction(s)to beto beenteredinto individuallyor collectivelyduring a financial year exceeds: 5% of the Annual Turnover; or 20% of the networth; Whichever is higher Prior Approval of Audit Committee Prior Approval of Audit Committee + Prior Approval of Sh. Holders by Sp. Resol. (Related Party can not vote) No Action Is it Material?

28. SEBI Disclosure of RPT Details of all material transactions with related parties shall be disclosed quarterly along with the compliance report on corporate governance. The company shall disclose the policy on dealing with Related Party Transactions on website and also in the Annual Report. its FCA Nidhi Srivastav www.go-training.in

29. Sec. 188 Exceptions Not Apply to : Any transactions entered into in its ordinary course of business other than transactions which are not on an arm’s length basis. Arm’s length transaction: Transaction between 2 related parties that is conducted as if they were unrelated, so that there is no conflict of interest. Ordinary Course of business: SA 550 Related Party: Examples of transactions outside the entity’s normal course of business: –––––– Complex equity transactions, such as corporate restructurings or acquisitions. Transactions with offshore entities in jurisdictions with weak corporate laws. The leasing of premises or the rendering of management services by the entity to another party if no consideration is exchanged. Sales transactions with unusually large discounts or returns. Transactions with circular arrangements, for example, sales with a commitment to repurchase. Transactions under contracts whose terms are changed before expiry. ––––––

30. Sec. 188 Related Party Transactions office or place of profit : i) where it is held by a director, if he receives anything by way of remuneration over & above remuneration to which he is entitled as director, by way of salary, fee, commission, perqs, rent free accommodation or otherwise; ii) by any individual, other than director, or by any firm/ pvt co / body corporate holding it receives from the co anything by way of remuneration, salary, commission, perqs, any rent free accommodation otherwise If Not Approved: oror Where entered without obtaining consent of board/ approval by special resolution in GM and if not ratified by Board/GM within 3 months, such contract voidable at the option of board and director concern (sanctioning) shall indemnify against any loss incurred by it. Open to the co to proceed against director / any other employee for recovery of any loss FCA Nidhi Srivastav www.go-training.in

31. Penalty for Contravention of Sec. 188 Any director/ any other employee of co who entered into / authorized such contract/arrangement in violation, shall - Fine not less thanmay extend to Rs. 5 lacs FCA Nidhi Srivastav www.go-training.in Any Other Co. Fine not less than Rs.25,000/- Listed Co. - Imprisonment upto 1 year Rs.25,000/- may extend to Rs. 5 lacs or - Both

32. Impact of Companies Act 2013 on the state of fraud FCA Nidhi Srivastav www.go-training.in Mandatory establishment of a vigil mechanism for listed companies Greater accountability on board and directors to report & detect fraud

33. Which provisions under the Companies Act, 2013 do you think will be the most effective in fighting fraud? FCA Nidhi Srivastav www.go-training.in Enhancement of the liability and accountability of Auditors to report instances of frauds Greater degree of accountability on Board of Directors related to the prevention and detection of fraud

34. Provisions related to class action suits- Section 37 & 245 of Companies Act, 2013 A suit may be filed or any other action may be taken u/s.34 or 35 or 36 any person, group of persons or any association of persons may file a suit or any other action or any association of persons for misleading statement or inclusion or omission of any matter in the prospectus. Section 245 of the Companies Act, 2013 (Act) contains provisions regarding Class Action Suits and it is covered under Chapter XVI- Prevention of Oppression and Mismanagement” of The Companies Act,2013.

35. Disgorgement related provisions Exit opportunity in case of variation in terms of objects or contracts has been provided in the Act to curb the malpractices of usurping public money wrongfully

36. Oppression and mismanagement Application for relief may be applied in NCLT in case of complaint by any members of the company

37. Other Investor Protection Measures Issue and Transfer of Securities and Non Payment of Dividend by Listed Companies shall be administered by SEBI Suit may be filed by a person who is affected by any Misleading Statement in the Prospectus or who has invested money by fraudulent inducement Serious Fraud Investigation Office:Statutory status to SFIO has been proposed. Investigation report of SFIO filed with the Court for framing of charges shall be treated as a report filed by a Police Officer.

38. Go-Training www.go-training.in FCA Nidhi Nsassociates.ca@gmail.com +91-92121 04977 FCA Nidhi Srivastav www.go-training.in nidhi@go-training.in