Restrictions eased for related-entity lending

The much awaited Companies (Amendment) Act, 2017, received the president’s assent on 3 January 2018 and was notified in the Official Gazette on 9 February and 7 May 2018.

The 2017 act was based on suggestions of the Companies Law Committee, constituted by the Ministry of Corporate Affairs (MCA), in its report dated 1 February 2016, with the aim to strengthen corporate governance and ease doing business in the country, in the wake of concerns raised by various stakeholders on account of implementation of the Companies Act, 2013, which was enacted to align Indian company law with company laws globally.

Sections 61 and 62 of the 2017 act brought about key amendments to sections 185 and 186 of the 2013 act, dealing with loans to directors and loans and investments by companies, and their corresponding rules. The legal framework on this has been a matter of much debate, despite the issuance of several clarifications and amendments on the provisions under sections 185 and 186 in view of concerns that rules may have been overriding the 2013 act. Before the 2017 act, companies had been struggling with structuring lending transactions backed by credit support, collateral or a guarantee from a parent company or a group company due to the restrictions contained in these provisions.

SNG & Partners has offices in Delhi, Mumbai, Singapore and Doha. Soumyajit Mitra is a principal associate and Kawaljeet Kaur is an associate.