Financial Transactions Under the Companies Act, 2013

1. Financial Transactions • Under the Companies Act, 2013

2. Financial Transactions • Under the Companies Act, 2013 Revenue Transactions Capital Nature Transactions Commercial Transactions Dividends Loans Capital issues Auditors Engagements / Services Debentures Guarantees Managerial Remuneration Borrowings Investments ECBs Deposits Related Party Transactions Non Related Party Transactions

3. Financial Transactions – General • Check the Object Clause of the Memorandum of Association • Impact of activities ultra virus to the provisions of the Memorandum of Association • Personal Liability of Directors • Transactions Void / Voidable • Action against the Directors / the Company Thank You

4. Loan to Directors etc. Section 185 of the Companies Act, 2013 • Save as otherwise provided in the Act, a company is not allowed the followings, directly or indirectly: • Advance any loans (including book debts ); or • Give guarantee or provide security in connection with loan • to directors or any person in whom the director is interested. Exemptions Ordinary course of business where the interest charged is not less than RBI bank rate. Private Limited Companies subject to certain conditions Transactions with WOS Guarantee / security to bank for loan to its subsidiary. Loan to MD / WTD as per company policy or shareholders’ approval (SR) Loans made to are utilized for its principal business activities

5. Loan to Directors etc. Section 185 of the Companies Act, 2013 • Who is the person in whom director is interested: • Directors of the Company or its holding company, their partners and relatives • Firms of above directors, their relatives • Private companies in which such directors are director or member • Body corporates in which such directors hold more than 25% of voting rights • Body corporates whose Board, MD, or manager are accustomed to act in accordance with direction of board or director(s) of lending company

6. Loan to Directors etc. Section 185 of the Companies Act, 2013 • Exemptions to Private Limited companies • [MCA notification No. F No. 2/11/ 2014- CL V dt. June 5, 2015] • The provisions of Chapter XII, Section 185 does not apply to Private Limited companies satisfying following criteria: • In whose share capital no other body corporate has invested any money • If the borrowing of such company from bank or financial institution or any body corporate is less than twice of its paid up share capital or Rs. 50 crores, which ever is lower • Such company has no default in repayment of such borrowings subsisting at the time of making transaction under this section Thank You

7. Loan to Directors etc. Section 185 of the Companies Act, 2013 • Exemptions w.r.t. Subsidiaries / Wholly owned subsidiaries • The provisions of Section 185 does not apply : • any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or • any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company. • Provided that the loans made under clauses (c) and (d) are utilized by the subsidiary company for its principal business activities. • Proviso to Sub section (1) • Inserted by the Companies (Amendment) Act, 2015 Thank You

8. Loan to Directors etc. Section 185 of the Companies Act, 2013 • Ordinary Course of Business? • Business is different from trade or commerce • Relationship of the activity with the principle business activity of the Company • Authorisation for the activity in the MoA • Frequency of the activity • Can a company give guarantee to a director for loan given to a third party u/s. 185? Only the guarantees / security in connection with Loan to a director is prohibited. Guarantees to directors in connection with Loan to third parties is not prohibited.

9. Loans and Investments by a company Section 186, 179 of the Companies Act, 2013] Layers of Investment companies A company shall unless otherwise prescribed, make investments through not more than two layers of investment companies. Investment Company means a company whose principal business is the acquisition of shares debentures or other securities • What does the Principal Business means? • The commercial activities undertaken by the Company • As per object clause of the Company • RBI’s 50:50 Asset income criteria

10. Loans and Investments by a company Section 186, 179 of the Companies Act, 2013 • Nature of Transactions: Loan, Investment in securities of a body corporates, Guarantees / security in connection with loans. • Limits: Higher of 60% of the paid capital, free reserves and securities premium or 100% of free reserves (including securities premium). • General Exemption: • Banking Company, Insurance, Housing Finance, NBFCs, Infrastructure facility companies (except for investments) • Exemption from Special Resolution: • Wholly Owned Subsidiaries / Joint Venture Company. • All other requirements e.g. minimum interest, board approval, register maintenance etc. applicable to such companies

11. Loans and Investments by a company Section 186, 179 of the Companies Act, 2013] • Whether purchase of debentures by by a company an Investment or a Loan? • Does the investment by a company in Mutual Funds attracts the provisions of Section 186? • If a company gives a sales tax surety (guarantee) for a company, does it require compliance of Section 186?

12. Loans and Investments by a company Section 186, 179 of the Companies Act, 2013] X Limited with paid up share capital of 1000 Cr. want to give loan to its subsidiary in which it hold 70% equity. The balance 30 % is held by a director of the Company. • The loan has to be in the ordinary course of business since the director hold >25% voting rights in the Company. • Audit Committee approval under section 177 since this is a transaction with related party. • Compliances under Section 186 • Compliances under Section 184 Can the Board delegate its power to make investments etc. to its principle officer / board committee under section 179? The provisions of section 179 enable the board to generally delegate its power of investments to the Principle officer / board committee. Since under section 186 there is no specific provision, the Board cannot delegate its power to make investments etc. to its committee or principle officers.

13. Related Party Transactions [Section 2(76), 177, 188, Rule 15-Chapter XII, F. No. 1/1/2014 dt.5/6/2015] • Who is a related party ? • Directors, KMPs of the Company or its Holding company and their relatives; • Firm in which a director, manager or his relative is a partner; • Private company in which a director or manager is a member or director; • Public company in which a director or manager is a director and along with his relatives holds, two per cent or more of its paid-up share capital; • Any person on whose advice, directions or instructions the board of director or MD or manager is accustomed to act, except in professional capacity; • Holding, subsidiary, fellow subsidiary associate companies or joint ventures. • (Does not apply to private limited companies) Paid up share capital [Section (2(64) ] Vs. total share capital [Rule (2(r) of Chapter 1]

14. Related Party Transactions [Section 2(76), 177, 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015] Related Party under Section 2(76) is different from AS 18

15. Related Party Transactions [Section 2(76), 177, 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015] Transactions Covered under section 188 • Sale, purchase and supply of any goods and material • Availing or rendering of any services • Selling or otherwise dispose off or buying property of any kind • Appointment of any agent for purchase or sale of goods , material, services, property • Leasing of property of any kind • Underwriting the subscription of any securities of the company • Such RP appointment to any office or place of profit in the company, its subsidiary or associate company

16. Related Party Transactions [Section 2(76), 177, 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015] • Sale, purchase or supply of any goods and material directly or via agent • Limit: 10% of the turnover or 100 Crore whichever is lower. • Selling, buying or disposing of property of any kind directly or via agent • Limit: 10% of the turnover or 100 Crore whichever is lower. • Leasing of property of any kind • Limit: 10% of the turnover or 10% of net worth or 100 Crore whichever is lower. • Availing or rendering of any services directly or via agent • Limit: 10% of the turnover or 50 Crore whichever is lower. • RP appointment to any office or place of profit of company, subsidiary or associate company • Limit: Monthly remuneration of 2.5 lakh. • (Turnover/Net-worth to be taken from previous year audited Financials)Section 134(3)(q), Rule 8(1) , 5(iv) of the Companies (Accounts) Rule 2014]

17. Related Party Transactions [Section 177, 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015] • Related Party Transactions • A related party “transaction” is a transfer of resources, services or obligations between a company and a related party, regardless of whether a price is charged. • Explanation: A “transaction" shall be construed to include single transaction or a group of transactions in a contract • All material Related Party Transactions shall require approval of the shareholders through special resolution and the related parties shall abstain from voting on such resolutions. • Provided that a transaction with a related party shall be considered material if the transaction / transactions to be entered into individually or taken together with previous transactions during a financial year, exceeds ten percent of the annual consolidated turnover of the company as per the last audited financial statements of the Company.

18. Related Party Transactions [Section 177, 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015] • Board Approval • Related party + Specified transactions + within the exemption limits specified. • Board approval + Ordinary resolution • Related Party + Specified transactions + not falling within the exemption limits specified. • Neither Board approval nor Ordinary resolution • Transaction in ordinary course of business and at Arm’s length. • Approval of Audit Committee(u/s 177 of Companies Act, 2013) • All the transactions (specified or not, in ordinary course or not, at Arm’s length or not) with the related parties require approval of Audit Committee.

19. Related Party Transactions [Section 188, Rule 15-Chapter XII, F No. 1/1/2014 dt.5/6/2015] Transactions with Related Parties u/s. 177 Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall inter alia include: (iv) Approval or any subsequent modification of transactions of the company with related parties Provided that the Audit Committee may make omnibus approval for the related party transactions proposed to be entered into by the company subject to such conditions as may be prescribed. How should a company deal with the following transactions with related parties? Dividends, Managerial Remunerations, Capital issues, Loans etc.

20. Deposits [Section 73-76 of the Companies Act, 2013 The Companies Acceptance of Deposit Rules 2014] • No company shall invite, accept or renew deposits under this Act from public except in a manner provided under Chapter V of the companies Act, 2013. • Deposits includes any receipt of money by way of deposit or loan or any other form by a company but does not include: • (a) Receipts from Government (b) Loans / fin. assistance from banks / PFIs • (c) Commercial papers (d) Inter corporate transactions • (d) Share application money (e) Loan from directors • Secured / compulsory convertible (g) Security deposits from bonds / debentures employees – upto 1 year salary • (h) Normal advance against goods/services (i) Security deposit under a contract • Advance for supply of capital goods (k) Relatives of directors of Pvt. Of Cos. (w.e.f. Sept 15, 2015) Thank You

21. Deposits [Section 73-76 of the Companies Act, 2013 The Companies Acceptance of Deposit Rules 2014] Doctrine of Ejusdem Generis to understand the meaning of any other form. Where specific words are followed by a general expression, the general expression is limited to the shared characteristics of the specific words, even though the general expression may ordinarily have a much broader meaning Thank You • Would the following transactions fall in the definition of Deposit: • Gold Schemes • Unsecured debentures to other companies • The transactions under litigation

22. Financial Transactions • Under the Companies Act, 2013 Investments Loans/Guaran-tee/security by companies 186 Contracts in which directors interested 184 Deposits 73 Borrowings 180

23. Thank You CS Rajendra Chopra Sr. Vice President & Company Secretary Bharti Airtel Limited rajendra.chopra@bharti.in