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    Applicability of Section 186 to the employees of company

    Posted By : Juhee Goyal / Published on : 01-Aug-2022 05:13 AM / View : 361 / Comment : 2

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    Hi Everyone!

    Are the provisions of section 186 applicable to the employees of
    the company ?
    Read more on : company employees section applicability

    • Dear Juhee,

      MCA vide its General Circular No. 04/2015 dated 10th March, 2015, has clarified that loans and/or advances made by the companies to their employees, other than the managing or whole-time directors (which is governed by section 185) are not governed by the requirements of section 186 of the Companies Act, 2013. Such clarification shall, however, be applicable if such loans/advances to employees are in accordance with the conditions of service applicable to employees and are also in accordance with the remuneration policy, in cases where such policy is required to be formulated.

      02-08-2022 / 05:43:54 AM
      Reply
    • Right,Section 186 of the Companies Act, 2013 applies to the company and its board of directors, and it pertains to the loans, guarantees, and securities provided by the company. It does not directly apply to the employees of the company.employees of the company may be indirectly affected by the provisions of Section 186. For instance, if the company provides a loan or guarantee to a third party, and that third party defaults on the repayment, it may have an adverse impact on the financial stability of the company, which in turn may affect the employees.

      MCA (Ministry of Corporate Affairs) has issued General Circular No. 04/2015 on March 10, 2015, clarifying that loans and advances made by companies to their employees, other than managing or whole-time directors, are not subject to the provisions of Section 186 of the Companies Act, 2013.

      This exemption applies only if such loans/advances to employees are made in accordance with the conditions of service applicable to employees and are also in accordance with the remuneration policy, where such policy is required to be formulated.

      Further this exemption applies only to loans and advances made to employees and does not apply to other types of financial transactions, such as guarantees or securities provided by the company to its employees.

      Therefore, companies must ensure that any loans and advances made to their employees comply with the conditions set out in the circular, and any other applicable laws and regulations. Companies should also have a clear remuneration policy in place, where required, to ensure that such transactions are made in accordance with the policy.

       

      19-04-2023 / 10:42:22 AM
      Reply
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