Report proposals’ impact on financing transactions

The Companies Act, 2013, is being implemented in a phased man- ner, with some provisions brought into force from September 2013, some from April 2014, and some yet to be notified. The 2013 act involved a major overhaul of the provisions of company law in India and, as a result, the imple- mentation of its provisions brought to light several practical challenges.

Though the Ministry of Corporate Affairs (MCA) had been actively issu- ing clarifications and amendments, a need was felt to constitute a committee to review the representations received from stakeholders. Accordingly, the MCA constituted the Company Law Committee, which submitted its report on 1 February. Some of the recom- mendations of the committee, which may impact nancing transactions, are discussed below.

Loans by companies

Subsequent to the enactment of section 185 of the 2013 act, an Indian company could not advance loans to its directors or to any other persons in whom its director is interested. Though the Companies (Meetings of Boards and its Powers) Rules, 2014, exempted the provision of loans by holding companies, and a notification dated 5 June 2015 exempted the provision of loans by certain private companies, the restriction under section 185 posed a great hurdle for genuine financing transactions.

Babu Sivaprakasam is a partner, Deep Roy is an associate partner and Megha Agarwal is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.