Briefly discuss the consequence of loan granted by Lion Private Limited to its director Santosh under the Companies Act, 2013.

(a) As per section 185 (1) of the Companies Act, 2013 (the Act) a company is not permitted to advance any loan directly or indirectly, including any loan represented by way of book debt to, or to give any guarantee or provide any security in connection with any loan taken by, - (i) any director of company or of a company which is its holding company or any partner or relative to any such director; or (ii) any firm in which any such director or relative is a partner; Exemption to a Private Company By virtue of exemption given by MCA vide its Notification No. GSR 464(E) dated 05.06.2015 as amended by GSR 583(E) dated 13.06.2017, Section 185 shall not apply to a private company, if the following conditions are satisfied (a) in whose share capital no other body corporate has invested any money; (b) if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice its paid-up share capital or fifty crore rupees, whichever is lower; and (c) such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section. Analysis In the given case study, Lion Private Limited is an Associate Company of Magic Limited, had advanced 25lakhs to its director, Santosh who had 25% shareholding in Lion Private Limited. Since Lion Private Limited is an Associate Company of Magic Limited, it implies that Magic Limited (a body corporate) has invested in the share capital of Lion Private Limited and therefore does not satisfy the first condition of abovementioned three conditions and accordingly, is not eligible to avail exemption from Section 185 of the Act. The other two conditions appear to be satisfied in a way that the loan of 25 lakhs advanced to the director Santosh, is below*50 crores and the lending company has not defaulted the repayment of overdraft facility arranged for giving loan to Santosh as no contrary information is given in this regard in the case study. The shareholding of Santosh has no implication on the conditions of exemption. Conclusion Lion Private Limited (the Lending Company) has advanced a loan of 25lakhs to Santosh, Director, in contravention of condition (a) of the exemption notification and as such, violated Section 185 of the Act, for which penal provisions become applicable as per Section 185 (4) of the Act. Penalty for contravention: Penalty for contravention of the provisions of Section 185 (i.e. if any loan is advanced or a guarantee or security is given or utilized contravening the provisions of Section 185) shall be as under: (a) Company: punishable with minimum fine of 5,00,000 and maximum fine of 25,00,000. (b) Every defaulting officer: punishable with imprisonment up to six months or with minimum fine of 5,00,000 and maximum fine of 25,00,000. (c) the director or the other person to whom any loan is advanced or guarantee or security is given in connection with any loan taken by him or the other person: punishable with imprisonment up to six months or with minimum fine of 5,00,000 and maximum fine of 25,00,000, or with both.