ANALYSIS AS TO WORD“INDIRECTLY” IN SECTION 185/295 OF COMPANIES ACT 2013/1956.



The basic contention of the section is to rohibit any type of fraud by a company, by window dressing its capital or sums through their director in a wrong pay. It prohibits fraud, it does not prohibit the transaction done for the welfare of company or for its subsidiary because if it is not wrong to have subsidiaries, it cannot be said to be wrong to support subsidiaries. If the subsidiary does well, it augments the asset value of the holding company, therefore, the well-being of the subsidiaries is the well-being of the holding company.” The basic contention of the section is to rohibit any type of fraud by a company, by window dressing its capital or sums through their director in a wrong pay. It prohibits fraud, it does not prohibit the transaction done for the welfare of company or for its subsidiary because if it is not wrong to have subsidiaries, it cannot be said to be wrong to support subsidiaries. If the subsidiary does well, it augments the asset value of the holding company, therefore, the well-being of the subsidiaries is the well-being of the holding company.” 


“When section 185 is also talking about indirect loan, in the light of various judicial pronouncements illustrated above “indirect loans” will connote that the company shall not give loan through the mode of one or more intermediaries. However, the word ‘indirectly’ cannot be read as converting what is not a loan into a loan. Hence, the amount given must be strictly a loan, which is not in the nature of loan, cannot be said to be the case of an indirect loan.

Direct Loan: Any amount granted by the company as ‘loan/ borrowing’, directly to its employees, provided the payment is as per Company policy. However, provisions regarding loans to Directors and KMP are stated under Sec 185 of Companies Act, 2013.

Indirect Loan: Any amount granted by the company indirectly, or, through one or more intermediaries.

For this reading the definition of “control” plays a vital role as defined under section 2(27) of companies act 2013. It helps in identifying the loan and helps in deciding the relationship of loan with the company.



Case:-

Dr. Fredie Ardeshir Mehta And ... vs Union of India And Others on 3 August, 1989

https://indiankanoon.org/doc/1462647/

“The Word "indirectly" in the section cannot be read as converting what is not a loan into a loan.”

Article:-

Case Study on Section 185 and Section 186 of Companies Act 2013

https://www.linkedin.com/pulse/case-study-section-185-186-companies-act-2013-cs-ravi-bhushan/

By CS Ravi Bhushan Kumar

Analysis of Section 185 of Companies Act, 2013- Loan to Directors

https://taxguru.in/company-law/analysis-section-185-companies-act-2013-loan-directors.html

By: - Subhamkar Das

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