SECTION 185 OF THE COMPANIES ACT, 2013
Imagine you have a lemonade stand and you have some friends helping you run it. Section 185 of the Companies Act is like a rule book that tells grown-ups who run big lemonade stands (called companies) what they need to do if they want to lend money or give money to help another company. This helps to make sure that everyone is playing fair and being safe with their money.
Section 185 of the Companies Act 2013: A Detailed Overview
The Companies Act 2013 is a comprehensive piece of legislation that governs the incorporation, management, and winding up of companies in India. One of the key provisions of this act is Section 185, which deals with the lending of money by companies.
The purpose of Section 185 is to prevent companies from engaging in practices that could potentially harm the interests of the company or its shareholders. The provision restricts a company from lending money to its directors or to any other company or firm in which any of its directors are interested, unless certain conditions are met.
Conditions for Lending Money:
Under Section 185, a company can only lend money to its directors or other companies if the loan is approved by a resolution passed by its board of directors and by a special resolution of its shareholders. The resolution must specify the purpose of the loan, the amount, the terms and conditions of repayment, and the security, if any, for the loan.
Additionally, Section 185 sets limits on the amount of money that a company can lend or advance. The maximum amount that a company can lend is 60% of its paid-up share capital, free reserves, and securities premium account.
Case Study of Kingfisher:
The Kingfisher case is significant in relation to the Companies Act 2013 because it highlights the importance of responsible borrowing and loan repayment by companies. Section 185 of the Companies Act 2013 lays down rules for companies in relation to loans, guarantees, and investments made by companies to its directors, their relatives, and other specified persons.
The Kingfisher case is a reminder that companies must follow the provisions of the Companies Act 2013, including Section 185, to ensure that their borrowing and loan repayment activities are in compliance with the law. Failure to do so can lead to legal consequences and damage to the reputation of the company and its directors.
In summary, the Kingfisher case is significant in the context of the Companies Act 2013 because it highlights the need for companies to follow the provisions of the act and ensure responsible borrowing and loan repayment practices.
Conclusion:
In conclusion, the provision helps to prevent potential abuses of power by directors and protects the interests of the company and its shareholders. Companies must ensure that they comply with the provisions of Section 185 and follow the necessary procedures before lending money to its directors or other companies.