India Growth Report 2018



India continues to make progress with policy reforms and initiatives that are making India a place with unprecedented opportunities for global and domestic businesses.

India’s progress on the World Bank’s Ease of Doing Business rankings, to a rank of 100, progressing from 14201 just three years ago (2015), reflects a focus on this topic at the centre and the states. Building on bankruptcy reforms, major nonperforming assets situations were identified for resolution and actions moving forward. Foreign Direct Investment (FDI) was further liberalised. In 2016-17, FDI reached an all-time high of USD60.1 billion.

A stable macroeconomic environment is a precursor to growth. India has demonstrated a resolve to achieve fiscal consolidation, complemented with aggressive and not purely populist measures. Retail inflation averaged at 3.4 per cent for the April – January FY18 period, significantly lower than 4.5 per cent during the same period in FY17, and, while fiscal deficit for FY18 modestly increased to 3.5 per cent of Gross Domestic Product (GDP), attributed mainly to uncertainty over Goods and Services Tax (GST) collections, the government is committed to further lower it to 3.3 per cent in FY19. The government has also addressed the deterrents and roadblocks to the country’s potential to grow, with progressive policy reforms such as GST and the newly formed Insolvency and Bankruptcy Code (IBC).

In spite of some reformative steps that slowed the growth momentum in the first quarter of FY18, the economy is likely to grow at 7.4 percent in 2018, higher than the advanced economies and the world, i.e., 2 per cent and 3 per cent, respectively.
India has been recording the highest growth rate amongst the Brazil, Russia, India, China and South Africa (BRICS) economies. Buttressing India’s stability is its foreign exchange reserve of about USD420 billion.

Ease of doing business (EODB) is an area where concerted actions have led to important results. The government has adopted more than 7,000 initiatives to improve EODB in the country. As a result, India is now placed amongst the top-five countries that improved its ranking in the World Bank’s Doing Business 2018 Report and, for the first time was ranked in the top 100 economies.

India recorded improvements in 9 out of 10 indicators supported by major measures such as time-bound clearance of applications, de-licensing manufacturing of defence equipment, single-window clearance mechanism, reducing documents required for trade and introducing a single form for online return filing.

This should be recognised as just the beginning of India’s continued efforts to become one of the most investor friendly nations, as it continues to focus on progressing in areas such as trade across borders, enforcement of contracts, registration of property and starting a business to create a more enabling, participative and inviting economic ecosystem.

Improving ease of doing business is an important enabling factor for attracting investments.

Other aspects to advance investments are the promotion of new sectors for investments, skill enhancement and employability. These areas are intertwined and are of key importance to investors. These are being addressed through several central government schemes, which have been adopted by most states.
New regulations also play a key role. While the GST unifies the country’s tax regime, the IBC helps address the resolution of high levels of Non Performing Assets (NPAs) – USD128 billion across 38 listed public and private banks, which have been weighing down the banking system.

This report also highlights India’s efforts to be a digitised economy. A consequence of demonetisation, adopted in November 2016, was the significant thrust to digital transactions in the country. The volume of digital transactions has increased significantly, reaching a record level of 1.1 billion in December 201708. In addition, the cash-to-GDP ratio declined to 8.8 per cent as of FY17, registering a drop from 12.2 per cent in FY16, indicating increased formalisation of the economy.

This report also analyses the progress achieved under several national priority programmes. Skill India, a flagship initiative of the government, has been able to strengthen the ecosystem wit qualified individuals by way of increasing the number of Industrial Training Institutes (ITI) in the country and offering the total number of Qualification Packs (QPs) across sectors.

The setting up of State Skill Development Missions by states has advanced the upskilling of the country’s workforce.

Similarly, the Swachh Bharat Mission and Smart Cities Mission have gained momentum and are promoting administrative professionalism and citizen engagement. Other initiatives like Startup India and Make in India have made inroads into different sectors of the economy, helping states foster a culture of entrepreneurship and innovation.

Sound infrastructure is important for business. Many steps have been taken to address port development and connectivity issues to make India a global logistics centre. The coastal shipping sector in India currently contributes to merely 6 per cent of the entire coastal and inland waterway freight movement. Plans are underway to double this share by 2025.

An area of significant progress has been roads, the lifeline of the country, where significant projects are being accomplished through public private partnership (PPP) models.

This sector has been opened up for 100 per cent FDI under the automatic approval route, subject to applicable laws and regulations.

Bharatmala is envisaged as a programme to develop 34,800 km of roads in its first phase, along the lines of Sagarmala which is a connectivity initiative in the ports and shipping sector. The Railway Budget in 2017 was consolidated with the Union Budget and the government earmarked a historic budget outlay to reshape Indian railways and allied sectors. With the growing need and importance of alternate sources of energy, the government has taken a series of initiatives, especially in the renewable energy (RE) sector paving the way for a host of investment opportunities in this growing sector as detailed in this report.

A majority of the industrial activity happens in the Micro, Small and Medium Enterprises (MSMEs) sector. Indian MSMEs, with approximately 63 million units, contribute 8 per cent to national GDP, employ over 111 million people and manufacture over 6,000 products.

The government intends to enhance the manufacturing sector’s contribution to 25 percent of GDP. Hence, several central government schemes are made to benefit this sector directly. Key steps have been taken by the government for this sector including reduction of the income tax rate of 25 per cent for MSME companies having a turnover of upto USD38.65 million and Minimum Alternate Tax credit carry forward extended to 15 years from 10 years.

Looking ahead, the promise of the many government initiatives mentioned must be realised through rigorous monitoring of these programmes.

India still needs to take further steps to restructure its trade and FDI regime. The country needs to be even more responsive and flexible to address global investors’ requirements.

It is now imperative that a fine balance be struck between the need to push public investment on the one hand and keep the fiscal deficit under check on the other.

Consumer spending could get a boost with a wise mix of public spending and other fiscal reforms to spur demand in the nation. The government will need to facilitate increased exports and further streamline the GST ecosystem.

Reforms are vital for sustainable growth. The Indian economy is moving in the right direction with initiatives taken towards stepping up infrastructure investment, land and labour market reforms and measures to boost manufacturing growth.

While all these can still be classified as an ‘unfinished agenda’, a significant volume of work has already been undertaken towards the completion of these tasks, in terms of a conducive policy environment as well as on the ground effort.

A combination of supportive global growth, improving capex, fiscal spending, a buoyant consumer and concerted policy efforts augur well for a stronger growth outlook for the Indian economy over the short to medium term.

India is marching ahead and setting examples for not just the developing economies but also for developed ones. India has many successes to be proud of – ranging from the Aadhaar programme extending unique identification to 1.14 billion individuals in 2017 to policy measures that provide an impetus to entrepreneurship.

Areas of focus and progress are varied and include simplification of taxes, focus on improving ease of doing business, right to information, universal education, food security, sanitation, rural employment
and governance and transparency.

SME Listing… Fund raising for Private Companies




In the Present era, the market is booming up so every Company want to take opportunity to earn more from the same market and want to get maximum benefits out of that, so what are the ways available for Company to avail such benefits.

So for that, Private Company has to change its Mission as well as the Vision and going for getting those benefits by Converting into Limited Company and after that by listing in SME platform.

What is SME ?

SME means Small and medium-sized enterprises or small and medium-sized businesses (SMBs) are businesses whose personnel numbers fall below certain limits.

What is SME Exchange ?

“SME exchange” means a trading platform of a recognised stock exchange having nationwide trading terminals permitted by the Board to list the specified securities issued in accordance with this Chapter and includes a stock exchange granted recognition for this purpose but does not include the Main Board”.

So now question is arise how those benefits can be obtained, the simplest answer is by listing in SME Platform.

What are the Criteria For Listing?


The Company shall be incorporated under the Companies Act, 1956 or 2013.


Post Issue Paid up Capital The post-issue paid up capital of the company shall be at least Rs. 3 crore.

Net-worth Net worth (excluding revaluation reserves) of at least Rs.3 crore as per the latest audited financial results.

Net Tangible Assets At least Rs. 3 crore as per the latest audited financial results.

Track Record

Distributable profits in terms of Section 123 of the Companies Act 2013 for at least two years out of immediately preceding three financial years (each financial year has to be a period of at least 12 months).

Extraordinary income will not be considered for the purpose of calculating distributable profits.


The net worth shall be at least Rs.5 crores.

Other Requirements

It is mandatory for a company to have a website.

It is mandatory for the company to facilitate trading in demat securities and enter into an agreement with both the depositories.

There should not be any change in the promoters of the company in preceding one year from date of filing application to Different Exchange for listing under SME segment.


A certificate from the applicant company / promoting companies stating the following

  • ” The Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR).” Note: Cases where company is out of BIFR is allowed.
  • There is no winding up petition against co., which has been admitted by the court or a liquidator has not been appointed.

Migration from Different Exchange SME Platform to the Main Board

The companies seeking migration to Main Board of Different Exchange should satisfy the eligibility criteria. It is mandatory for the company to be listed and traded on the Different Exchange SME Platform for a minimum period of two years and then they can migrate to the Main Board as per the guidelines specified by SEBI vide their circular dated 18th May 2010 and as per the procedures laid down in the ICDR guidelines Chapter X B.

What are the Benefits of Listing in SME ?

  1. Easy access to Capital: Different Exchange SME provides an avenue to raise capital through equity infusion for growth oriented SME’s.

2. Enhanced Visibility and Prestige: The SME’s benefit by greater credibility and enhanced financial status leading to demand in the company’s shares and higher valuation of the company.

3. Encourages Growth of SMEs: Equity financing provides growth opportunities like expansion, mergers and acquisitions thus being a cost effective and tax efficient mode.

4. Ensures Tax Benefits: In case of listed securities Short Term Gains Tax is 15% and there is absolutely no Long Term Capital Gains Tax.

5. Enables Liquidity for Shareholders: Equity financing enables liquidity for shareholders, provides growth opportunities like expansion, mergers and acquisitions, thus being a cost effective and tax efficient mode.

6. Equity financing through Venture Capital: Provides an incentive for Venture Capital Funds by creating an Exit Route and thus reducing their lock in period.

7. Efficient Risk Distribution: Capital Markets ensure that the capital flows to its best uses and that riskier activities with higher payoffs are funded.

8. Employee Incentives: Employee Stock Options ensures stronger employee commitment, participation and recruitment incentive.

How the Listing Procedures done ?

This is as simple as we understand Follow the Below Steps….!!!


The Issuer Company consults and appoints the Merchant Banker/s in an advisory capacity.


The Merchant Banker prepares the documentation for filing after:

conducting due diligence regarding the Company i.e checking the documentation including all the financial documents, material contracts, Government Approvals, Promoter details etc.

and planning the IPO structure, share issuances, and financial requirements


Application procedure:
Submission of DRHP/Draft Prospectus –

These documents are prepared by the Merchant Banker and filed with the Exchange as well as with SEBI as per requirements.

Verification & Site Visit –

Different Exchange verifies the documents and processes the same. A visit to the company’s site shall be undertaken by the Exchange official .The Promoters are called for an interview with the Listing Advisory Committee.

Approval –

Different Exchange issues an In Principle approval on the recommendation of the Committee, provided all the requirements are compiled by the Issuer Company.

Filing of RHP/Prospectus –

Merchant Banker files these documents with the ROC indicating the opening and closing date of the issue.

Once approval is received from the ROC, they intimate the Exchange regarding the opening dates of the issue along with the required documents.

Public Offering

The Initial Public Offer opens and closes as per schedule. After the closure of IPO, the Company submits the documents as per the checklist to the Exchange for finalization of the basis of allotment.

Post Listing

Different Exchange finalizes the basis of allotment and issues the Notice regarding Listing and Trading.

Any Guidelines For Listing ?

The Company has to follow the below Guidelines.


The post issue face value capital should not exceed Rs. Twenty-five crores.

Trading lot size

The minimum application and trading lot size shall not be less than Rs. 1,00,000/-

The minimum depth shall be Rs 1,00,000/- and at any point of time it shall not be less than Rs 1,00,000/-.

The investors holding with less than Rs 1,00,000/- shall be allowed to offer their holding to the Market Maker in one lot.

However in functionality the market lot will be subject to revival after a stipulated time.


The existing Members of the Exchange shall be eligible to participate in SME Platform.


The issues shall be 100% underwritten and Merchant Bankers shall underwrite 15% in their own account.


So, if you want to increase the reputation of your Company in the developing Countries like India, then you should have to register your Company in SME Platform because ultimately your Company get reputed because it is traded in Exchange Platform so Goodwill of the Company is also increased and ultimately you achieve your profit as I said in the First para.

This is best platform provided to the Company for those Company who has not much Paid Up Capital and also less reputed but by registering in SME Platform the Company not only get Reputation in all over India at large but also the Company get Profit by availing Tax benefits upto some extent.

So considering the above fact Company should have to opt for this option and after Few years the Company is also transferred from SME Platform to Main Board., so your Company considered as the same as others reputed Company.

So by considering the Current Market Scenario every Private Company as well as Unlisted Public Company has to think on this matter and work accordingly.

Though this Facility is available since long but few of them able to grab this opportunity. Now its time to Rethink about this opportunity.

Conversion of Partnership firm into Company

Partnership firm

Partnership firm

Short Summary

Ministry of Corporate Affairs allowed conversion of Partnership Firm into Company under Companies Act, 2013, for such conversion there is need to prepare a list of documents and required to file the same with ROC in forms like URC-1, INC-32, INC-33 and INC-34 etc.

While conversion there is need to consider the implications of income Tax provisions also like Capital Gain.

In below-mentioned article author attempt to cover up the provisions of Companies Act and capital gain implication while conversion from Partnership firm into Company.


Corporatization is the need of the hour. The entire world is gradually drifting towards one global market without any trade barriers between the countries.

With the emergence of corporate work culture and promotional startup benefits, a great chunk of entrepreneurs are looking forward to corporatization.

This step can be initiated in 2 ways as enumerated below:

  1. Incorporation of a new corporate entity.
  2. Conversion of existing entity (e.g. LLP/ Partnership Firm) into a Company.

The 2nd option of conversion of Partnership Firm into a corporate entity might be practical for the existing entities to switch over from one mode of business to another.

The process of conversion is a step by step procedure, which is a technical process but if handled with expert knowledge may be time and cost saving, as well.


The Gujarat High Court (HC) had held in the taxpayer’s case that conversion of a firm into a company was not a transfer (even before section 47(xiii) was introduced) and would not be subject to capital gains tax.

Process for Conversion

Note: Foremost Condition for Conversion is “There should be 7 (seven) or more member in the partnership firm at the time of conversion”. However, MCA has reduced this limit to 2 (Two) under Companies Amendment Act, 2017. This amended provision still not applicable as on 30.04.2018


Hold a meeting of the partners to take assent of the majority of its partners summoned for the purpose of registering the Partnership firm under Section 366 of the Companies Act, 2013.

To authorize two or more partners to take all steps necessary and to execute all papers, deeds, documents etc. pursuant to registration of the Partnership firm as a Company.

Partnership firm has to apply for Availability of the Name in RUN.

One of the major advantages is that the business can be run under the same name as that of the partnership (subject to availability of name as per Name Availability guidelines of Companies Act) the words ‘limited’ or ‘private limited’ has to be added.


On obtaining the approval of Name, file the following Form along with required documents with the Registrar of Companies within 20 days from the date of name approval.

List of Documents required filing with ROC

E-form URC-1

Company required filing e-form URC- 1 along with all the below mentioned documents:

  • A list showing the names, addresses, and occupations of all persons named therein as members with details of shares held by them
  • a list showing the particulars of persons proposed as the first directors of the company
  • an affidavit from each of the persons proposed as the first directors, that he is not disqualified to be a director under sub-section (1) of section 164 and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief
  • a list containing the names and addresses of the partners of the firm
  • in case of a firm, deeds of partnership, bye-laws or other instrument constituting or regulating the company and duly verified in the manner provided in sub-rule (4) and in case the deed of partnership was revised at any time in the past, copies of the principal and all subsequent deeds including the latest deed, along with the certificate of the registration issued by Registrar of firms, in case the firm is registered
  • a statement of assets and liabilities of the Limited Liability Partnership duly certified by a chartered accountant in practice which is made as on a date not earlier than thirty days of the filing of form no.URC-1
  • a copy of latest income tax return of the Partnership Firm
  • an undertaking that the proposed directors shall comply with the requirements of Indian Stamp Act, 1899 (2 of “1899)
  • the written consent or No Objection Certificate from all the secured creditors of the applicant
  • written consent from the majority of Partners
  • a statement specifying the following particulars:
    the nominal share capital of the company and the number of shares into which it is divided;
  • the number of shares taken and the amount paid on each share;
  • the name of the company, with the addition of the word “Limited” or “Private Limited” as the case may require, as the last word or words thereof;

E-form INC- 33 / INC-33 / INC-34

Company required to file e-form INC-32/ INC-33/ INC-34 along with URC-1 as a linked form with all the attachment as required in normal Incorporation of Company like:

MOA & AOA (Physical in case of more than 7 subscribers otherwise INC-33 and INC-34)


DIR-2 etc.


There are various ways of converting a firm to a company, viz; slump sale, itemized sale, admitting the company as a partner, dissolution thereof and on dissolution, business being taken over by the company etc.,

In view of the choices available, conversion should be made in a manner appropriate to a particular situation and in a way which is most beneficial.


In decision of the Bombay High Court in CIT v Texspin Engineering & Manufacturing Co. (2003) 263 ITR 345 (Bom) has held that such conversion of firm into company by following the route under Part-IX of the Companies Act, 1956, does not occasion capital gains, since there is no transfer involved in such a case. The High Court after considering the provisions of Cos. Act, provisions of income tax relating to capital gains and relying on the ratio of Malbar Fisheries Company v CIT (1979) 120 ITR 49 (SC), CIT Vs. George Henderson & Co Ltd (1967) 66 ITR 622 (SC), CIT Vs. Gillanders Arbuthnot & Co (1973) 87 ITR 407 (SC), held that when a firm is registered as a company, as per the procedure prescribed under Part IX of the Cos. Act, no capital gains arising to the firm.

When a partnership firm is treated as a limited company, under Part IX of the Companies Act, the properties of the erstwhile firm vests in the limited company as they exist.

There is no dissolution of the firm. Hence section 45 (1) of the Income Tax Act is not applicable. When shares of the Company are allotted to partners in consideration of capital standing in their accounts in the firm, there is no transfer of capital assets as contemplated under section 2(47)(iii) of the Income Tax Act (i.e. compulsory acquisition, thereof under any law), as partners are getting their own right to share Capital.

In Well Pack Packaging Vs. Dy. CIT (2003) 78 TTJ (Ahd.) 448, also the same view was taken that, corporatization of the firm under the part IX route did not attract liability to Capital Gains in the hands of the firm.

In Vali Pattabhiram Roa v Shri Ramanuja Ginnning & Rice Factory (P) Ltd. (1986) 60 Comp case 568 (AP), the Court has held that there is no transfer under general law if the constitution of the firm is changed to that of a company by registering it under Part IX of the Companies Act, as there shall be statutory vesting of title of all the properties of the firm in the newly incorporated company without any need for a separate conveyance.


How to file the Conversion form in case of more than 7 partners in the Firm?

In case of more than 7 partners in the Firms at the time of conversion into Company then Company have to file Scan copy of Physically prepared MOA & AOA.

In above-mentioned situation, the company have to file URC-1 and INC-32.

No need of INC-33 and INC 34 in the above-mentioned situations.

Whether at the time of Conversion whether Latest Partnership deed shall be attached in the form URC-1?

As per Rules, at the time of Conversion partnership firm have to file “copies of the principal & all subsequent deeds including the latest deed” with the ROC in e-form URC-1

Whether the certificate of registration issued by the Registrar of Firms is Mandatory?

Certificate is mandatory only in the case when the firm is registered with Registrar. In other cases, there is no need to attach certificate.

Whether e-MOA & AOA can be filed in case of MOA & AOA is signed by a person at a place outside of India?

In case of incorporation of a company where any of the subscribers of the MOA/AOA is signing at a place outside India, MOA & AOA shall be filled with INC 32 in the respective format as specified in Table A to J in Schedule I without filing form INC 33 and INC 34. (Means Physical attachment of MOA & AOA in e-form INC 32)

How many DIN can be applied through SPICE Form?

Maximum three DIN can be applied through SPICE form. If the applicant wants to incorporate Company with more than 3 Directors & more than 3 persons doesn’t have DIN. In such situation applicant have to incorporate Company with 3 Directors & have to appoint new directors later on after incorporation.

Whether there is need to file any separate form for PAN & TAN?

No need to file any separate form. Details in relation to Area Code and other details shall be mention in the form INC-32 itself and PAN & TAN shall be generated with Certificate of Incorporation.

Caution to be taken by Professionals
Obtain engagement letter from the subscriber: As per certification in e-form SPICE i.e. INC-32, a professional declares that he has been engaged for the purpose of certification Therefore it is advisable to obtain an engagement letter.

Verification of original records pertaining to registered office: As per certification in e-form Spice i.e. INC-32, a professional declares that he has verified all the particulars(including attachments) from original records.

Ensure all attachments are clear enough to read: As per certification in e-form Spice i.e. INC-32, a professional declares that all attachments are completely and legibly attached.

Ensure registered office of the company is functioning for the business purposes of the company: As per certification in e-form Spice i.e. INC-32, a professional declares that he has personally visited the registered office.

Take a declaration to the effect that all the original documents have been handed over after incorporation. Since as per section 7(4) copies all documents/ information as originally filed should be preserved at the registered office of the company, therefore a professional should take a declaration while handing over the incorporation documents.

MCA Circular 10/2014: According to this circular ROC/RD in case of omission of material fact or submission of false/incomplete/ misleading information can after giving opportunity to explain refer the matter toe-governance division of MCA, which in turn may initiate proceedings under section 447 and/or ask the respective professional institute to take requisite disciplinary action.

Loan to Group Companies under Sec 185(2)



In this Research editorial, the author begins by referring the provisions of Section 185 of sp chopra, 2017 (Loan to Directors and entities in which directors are interested).

The main focus of this research editorial on ‘Whether a Company can give loan to other Companies or Body Corporates in which their directors are interested’ If NO, why? If yes, then what are the Compliance a company required for the same’.


Section 185 of Companies Act, 2013 corresponds to section 295 of the Companies Act, 1956, section 86D of the Indian Companies Act, 1913 and section 190 of the English Companies Act, 1948. It has been made effective from 12-9-2013

This refers that “Companies Act likely to jolt Corporate World”. Section 185 of the Companies Act, 2013, which puts restrictions on inter-corporate loans, jolted the corporate world.

Until now, Companies were in the habit of borrowing funds from banks and passing them on to subsidiaries and associate companies through inter- corporate loans.

The holding companies never bothered to comply with the terms of the loan agreement when it concerned the deployment of the borrowed funds.

The banks never monitored such fund deployment. Many amendments has been made under this section since its notification.


Section 2 of Companies Act, 2013, does not define ‘loan’. A loan is defined by the Oxford English Dictionary as ” a thing lent; something the use of which is allowed for a time, on the understanding that it shall be returned or an equivalent given, a sum of money lent on these conditions and usually with interest.

The Supreme Court in the case of Shree Ram Mills Ltd v. Commissioner of Excess Profit Tax, MANU/SC/0054/1954 ;


Section 185 of Companies Act, 2013 has been completely substituted by New Section 185 under Companies Amendment Act, 2017 (CA, 2017 got president assent on 3rd January, 2018. Due to Complete substitution there are many changes under this section as mentioned below.

Language of Section 185

  1. No Company ( Private & Public)
  • Directly or Indirectly
  • Advanced any loan, including Blood Debt
  • Or any Guarantee or provide any security in connection with any loan taken by

Following Persons

  • Any director of Company, or
  • Any director of a Company which is its Holding Company, or
  • Any partner of Director of lender company, or
  • Any relative of Directors of Lender Company, or
  • Any firm in which any of Director of Lending Company is Director, or
  • Any firm in which any relative of Director of lending Company is Director.

Points to be Kept in Mind while Complying according to this Section

  1. This Subsection applicable on Public Limited as well as Private Limited Company (whether small, OPC, Start ups etc.)
  2. Guarantee or Security in respect of only ‘Loan’ is covered.
  3. Only individuals/ firms are covered in sub section 1.
  4. Companies / body corporates are not covered in above sub section

Following loan can be given by company to Any Person in whom directors are interested after fulfilling the Conditions mentioned below:

  • Advance any loan, including loan represented by a book debt
  • Give any guarantee in connection with any loan taken
  • Provide any security in connection with any loan taken

Any Person:

  • Any Private Company of which any such Director is a Director or member; I
  • Body Corporate in which 25% or more voting power rests with one or more directors;
  • Body Corporate whose Board accustomed to act on directions of BOD or Directors of lending company


  1. Special Resolution passed by the Company in General Meeting.
  2. The loans are utilized by the borrowing company for its principal business activities.

Points to be Kept in Mind while Complying according to this Section

  • If borrower is Private Limited Company having common directors/ members then by using this sub section loan can be given.
  • Body Corporate includes LLPs, therefore as per, point (ii) of any person L/G/S can be given to LLP also. [Condition 25% or more voting power vested with one or more director of lender Company together].

Food for Thought:

  1. In case of Borrower if Public Limited Company and having common directors from Lender Company then whether Lender Company can give L/G/S ?
  2. Issue under Income Tax Act in case of loan given to a Company in which Director of Lender Company are members?
  3. What is meaning of ‘Principle Business Activity’ for the borrower?


As per above mentioned provisions of Section 185 (1) & (2) a Lender Company can give loan to following below mentioned person / entities.

Situation I: In case of Lender Company giving loan to any entities (Group Private Limited Companies) as mentioned in Section 185(2)

  1. Holding of Board Meeting: Lender Company have to hold a Board Meeting;
  • Pass Board resolution [u/s 179 (3)(f)] (Passed Unanimous Board Resolution as per Section 186(5))
  • Pass resolution to call Extra ordinary General Meeting
  • Issue Notice of EGM
  • Check Limit of Loan/ G/ S as per Section 186(2) whether it is in limit or not.

2. If Lender Company is Public Company then file the Board Resolution in e-form MGT-14 with Roc with in 30 days from the date of Board Meeting.

3. Convening of General Meeting: Hold the EGM and pass the Special Resolution for granting loan, guarantee or security by mentioned following information in the Explanatory Statement:
Full Particular of the loans given; or

  • Guarantee given or security provided and
  • The purpose for which the loan or guarantee or
  • security is proposed to be utilized by the recipient of the loan or guarantee or security and other relevant facts
  1. File MGT-14 with ROC: File copy of Special Resolution along with explanatory statement with ROC in e-form MGT-14 within 30 days of EGM.
  2. Declaration from Borrower: Take a declaration from the borrower Company that it will use this Loan for the Principle Business Activity only.
  3. Limits of L/G/S u/s 186(2): Check whether loan is in limit u/s 186(2) if not then whether Special Resolution for such has been passed or not.

Limits as mentioned below:

  • 60% of Paid up share capital + Free Reserve + Securities Premium Account OR
  • 100% of Free Reserve + Securities Premium Account

4. Approval of Public Financial Institution: If Loan is not covered in above mentioned Limit or there is any default in repayment of loan instalments or payment of interest by lender to public financial institution then before initiation loan to borrower take approval of public financial institution also.

5. Disclosure by Lender: As per Section 186(4) Company shall disclose in the Financial statement full particular of Loan/ G/ S and purpose for which such L/G/S is proposed to be utilized by borrower.

6. Interest on Loan u/s 186 (7): Loan shall be given at a rate of interest not lower than the prevailing yield of one year, three year, five year or then year Government security closest to the tenor of the loan.