On behalf of

SPELL BOUND
Centre for Professional Studies
its my proud privilege and honour to be
in the midst of this august audience
for a discussion on
Loans & Related party transactions
under the Companies Act 2013 – Audit
approach
-- L.JAYARAMAN. M.Com. FCS
 Loans to Directors - sec 185
 No company shall, directly or indirectly, advance
any loan, including any loan represented by a book
debt,
 to any of its directors or
 to any other person in whom the director is
interested or
 give any guarantee or provide any security in
connection with any loan taken by him or such other
person:
 What is a loan, guarantee & security?
1. Section covers loans, guarantees and securities
given by the company – not received.
2. Loan to have the following four elements
 (i) The amount in money or kind
 (ii) Placing with other called borrower
 (iii) Agreement to repay
 (iv) Recognition of liability on borrower to return in
cash, with or without interest.
1. Guarantees not supported by mortgage.
2. Security supported by mortgage of
assets.
3. Section Prohibits loans, guarantees and securities
given by the company.
 The expression "to any other person in
whom director is interested" means
1. to a director of lending company or its
holding company.
2. to a relative of any such director.
 Relative
1. “Relative” means –
 They are members of a HUF
 They are husband and wife
 One person is related to the other in the following
manner
 Father Mother

Brother Person Sister

Person
& his Spouse

Son & Daughter &

son’s wife daughter’s husband
3. toa partner of such director.
4. to any firm in which such director or a
relative is a partner.
5. to a private company in which such
director is a director or a member.
6. to any body corporate in which 25% or
more of total voting power is exercised
by one or more such directors.
7. to any body corporate, in which the
Board / M.D./ Manager is accustomed to
act in accordance with directions or
instructions of the Board or any director
of the lending company.
 Indirect loans – covers what?
Loan to a Trust / HUF – will it attract sec 185?
Loans or advances
 to a trust in which directors are trustees /
beneficiaries or
 to a HUF in which the director is a karta / member
are not covered within the 7 parameters of section 185.
It cannot be even called as ”indirect loans”
 Quasi loans – will it attract 185?
1. When a company
 pays money for the director to a third person
 in such circumstances that the director becomes
liable to reimburse the company,
 it is a quasi-loan to a director.
2. Such a transaction does not constitute even as
indirect loan.
 Indirect loans – covers what?
1. The word “indirectly” can be extended to cover only
the “agents” of the persons specified in section 185.
 Scope of Guarantees/ securities covered
Consider these guarantees/ securities transactions
1. Co G/S Sp. Person Loan Sp Person.
2. Co G/S Person Loan Sp Person.
3. Co G/S Sp. Person Loan Person.
4. Co G/S Person Loan Person.

Cases 1, 2 and 3 will attract section 185

1. Any guarantee/security not involving transaction of
lending/borrowing would not attract this section
including,
 performance guarantees given to third parties
 guarantees against advance received for goods/
project.
 Supply of goods to Director on credit –
will it attract section 185?
1. The answer depends on facts of the case.
2. It has to be found out in each case whether the sale
on credit was a genuine credit sale or a loan
disguised as a credit sale.
3. Such transaction may look like ordinary trade
dealings, but will attract sec 185, if the intention was
to give accommodation in that manner.
 Traveling advance/ conveyance advance/
salary advance to Director – will it attract
section 185?
1. The answer depends on facts of the case.
2. It has to be found out in each case whether the
advance was a genuine advance or a loan disguised
as a advance.
1. In M.R. Electronics Components Ltd. case a
company had given an advance of Rs. 5,000/- to
MD’s wife who was employed by the company on a
monthly salary.
2. The High court held that merely because the
beneficiary, happened also to be the wife of a
director could not justify that an offence had been
committed.
3. The court had to find out in each case whether
the salary advance was a genuine salary
advance or a loan disguised as a salary
advance and for this purpose, facts of the
case shall be considered and in particular the
following:
1. Whether the beneficiary is a bona fide employee.
2. Whether the advance falls in the general scheme
of advances given by the company to other
employees.
3. Whether the amount paid is disproportionate to
the salary of the employee.
4. The conditions of repayment, like the rate of
interest.
5. Whether there was laxity in the recovery of
advance.
6. What is the capacity of the person receiving the
advance.
 Rental advance & section 185
Payment of rental advance
 by the company to the landlord
 to secure accommodation for MD
 will not attract section 185 because
1. The company has not given any deposit to the MD.
The amount deposited with the landlord cannot be
said to be an ‘indirect loan’, unless such deposit is
diverted by the landlord to the MD.
2. It is a usual practice to give a security deposit to the
landlord when a rental agreement is entered into.
Thus, the security deposit is on account of bona fide
business considerations.
3. It is of no concern of the MD as to the terms on which
the company secures residential accommodation for
him.
4.It is the company and not the director who has
entered into the lease agreement. Therefore, the
company can at anytime use the accommodation for
any other purpose and the MD will have to vacate it,
as and when desired by the company.
 Loan and deposit
1. Sec 185 applies to both, to a loan and deposit given
by the company.
2. Loan and deposit differ under the law of limitation.
3. However, in both the cases, there is a relationship of
debtor and creditor.
 Loan and debt
1. Where a company sells a flat to one of its directors
and
 receives half the price in cash and the balance in
installments,
 the transaction amounts to a credit sale;
 it does not amount to even an ‘indirect loan’.
2. The word ‘indirect’ cannot be read as converting what
is not a loan into a loan.
3. Therefore, the Court held that there was no
contravention of section 295 (presently sec 185).
[Dr. Fredie Ardeshir Mehta v. Union of India, 1991].
 Exemptions in section 185
This section will not apply to
1. the giving of any loan to a MD/WTD
 as a part of the conditions of service extended by
the company to all its employees; or
 pursuant to any scheme approved by the members
by a special resolution; or
2. a company which in the ordinary course of its
business provides loans / guarantees / securities for
the due repayment of any loan and in respect of such
loans, an interest is charged at a rate not less than
the bank rate declared by the RBI.
Consequences of Violation of sec 185
 the company shall be punishable with fine which
shall not be less than Rs. 5,00,000/- but which may
extend to Rs 25,00,000,
 and the director or the other person to whom any
loan is advanced or guarantee or security is given,
shall be punishable with imprisonment which may
extend to 6 months or with fine which shall not be
less than Rs 5 lakhs but which may extend to Rs 25
lakhs, or with both (Under the old Act, imprisonment
could be avoided by fully repaying the loan).
 Exemptions under section 185 as
provided in the rules
 Loans, guarantees and securities made by holding
company to its wholly owned subsidary companies
are exempt.
 Guarantees and Securities provided by holding
company in respect of loans by a bank/financial
institution to its subsidary is exempt
 Subsequent applicability of Sec 185
If the manager, secretary or employees are
subsequently appointed as Directors
 this section will not apply since, the applicability of
this section has to be seen on transaction date.
Loan and investment by company - Sec 186
1. No company shall directly or indirectly
 give any loan to any person or other body corporate;
 give any guarantee or provide security in connection
with a loan to any other body corporate or person;
and
 acquire by way of subscription, purchase or
otherwise, the securities of any other body corporate,
 exceeding 60% of its paid-up share capital, free
reserves and securities premium account or 100% of
its free reserves and securities premium account,
whichever is more.
2. Where the giving of any loan or guarantee or
providing any security or the acquisition exceeds the
limits specified, prior special resolution passed at a
general meeting shall be necessary.
3. The special resolution shall specify the total amount
upto which the Board are authorized to give in
excess of the limits specified.
 Indirectly
1. The word ‘indirectly’ refers to any person who holds
the securities
 in trust or
 for its benefit or
 on its account or
 as a nominee
of the investing company
 Loan does not include deposits

1. Under the previous act, loans included deposits

made by one company to another. The same stands
omitted in the new Act. Therefore, inter corporate
deposits will not enter in the calculation of 60%/100%
limits.
 Acquisition of Securities of Body Corporate
1. Securities can be acquired through subscription,
purchase or otherwise
2. Securities under SCRA includes:
 Shares, scrip’s, stocks, bonds, debentures,
debenture stock or other marketable securities of a
like nature in any incorporated company or other
body corporate.
 Derivative
 Units or another instrument issued by any collective
investment scheme to the investors in such
schemes.
 Government securities.
 Security receipt as defined in the Securitization Act,
2002.
 Such other instruments as may be declared by the
Central Government to be securities.
 Rights or interest in securities.
 Free reserves thus includes
1. Profit and Loss Account credit balance
2. General reserves
3. Dividend equalisation reserve
4. Securities premium account
 Free reserves does not include
1. Capital redemption reserve,
2. Sinking fund,
3. Provision for taxation
4. Fixed assets revaluation reserve
5. Capital reserves.
 Disclosure in financial statements
The company shall
 disclose to the members in the financial statement
 the full particulars of the loans given, investment
made 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.
 Board meeting & Unanimous approval

1.No investment shall be made or loan or guarantee or

security given by the company unless
the resolution sanctioning it is passed at a meeting of
the Board
with the consent of all the directors present at the
meeting and
the prior approval of the public financial institution
concerned where any term loan is subsisting, is
obtained:
2.The resolution is to be passed
 at a meeting of the Board
 with consent of all the directors present.
3.Such unanimous consent at the Board meeting will
apply in both the cases
 Within 60%/100% limits and
 Beyond the above limits
4. However, prior approval of a public financial
institution shall not be required
 where the aggregate of the loan/investments/
guarantee/security so far made, together with the
proposal
 does not exceed the Board limits (60%/100%)
 and there is no default in repayment of loan
installments or payment of interest thereon
 as per the terms and conditions of such loan to the
public financial institution.
5. No company registered under section 12 of the SEBI
Act, 1992 and also covered under such class of
companies notified by CG in consultation with SEBI,
 shall take any inter-corporate loan or deposits,
 in excess of the limits prescribed under the
regulations applicable to such company, pursuant to
which it has obtained certificate of registration from
SEBI.
 Case where special resolution not
required
1. Special resolution shall not be required
 where the loan or guarantee or security is given by
the company to its Wholly owned subsidiary or a
Joint venture company or
 for investments by the company to its Wholly owned
subsidiary.
2) However such details shall be disclosed in financial
statements of the company
 Rate of interest
No loan shall be given under this section at a rate of
interest lower than the
 prevailing yield of 1 year, 3 year, 5 year or 10 year
Government Security closest to the tenor of the loan.
 Default in repayment of deposits
 No company
 which is in default in the repayment of any deposits
accepted before or after the commencement of this
Act or
 in payment of interest thereon,
 shall give any loan or give any guarantee or provide
any security or make an acquisition
 till such default is subsisting.
 Non-applicability of the section
This section will not apply to a loan, guarantee given or
security provided by
a banking company or
an insurance company or
a housing finance company in the ordinary course of
its business or
a company engaged in the business of financing of
companies (NBFC company registered with RBI) or
of providing infrastructural facilities;
to any acquisition —
made by an NBFC company registered with RBI
whose principal business is acquisition of securities,
in respect of its investment and lending activities;
made by a company whose principal business is
the acquisition of securities;
of right shares allotted under section 62.
The Central Government may make rules for the
purposes of this section.
 Postal ballot
Postal Ballot is mandatory
 for passing special resolution
 in the case of a listed company
 for transacting any business
 in excess of the ceiling limits of 60%/ 100% as
specified.
 Power to make inter corporate loans and
investments cannot be delegated
1. Section 179(3) authorizes the Board to delegate the
power to make loans and investments.
2. However, under section 186, the power to make inter
corporate loans and investments cannot be
delegated by a public company.
 Department clarification
1. Special resolution, for loans/ investment much
beyond the net worth should not be passed by the
companies.
2. Thus borrowed funds cannot be used for inter
corporate loans and investments.
3. The explanatory statement should indicate, the
specific securities in which it is proposed to invest.
En-block approval should normally be avoided.
4. Thus company wise, investment wise, separate
resolution must be passed.
 Investments not to exceed two layers
1. A company shall make investment through not more
than two layers of investment companies:
2. However, the above restriction shall not affect,—
 a company from acquiring any other company
incorporated outside India if such other company has
investment subsidiaries beyond two layers as per the
laws of such country;
 a subsidiary company from having any investment
subsidiary for the purposes of meeting the
requirements under any law or under any rule or
regulation framed under any law for the time being in
force.
Related party transactions – Sec 188
1.Except with the
 consent of the Board of Directors
 given by a resolution at a Board Meeting and
 subject to such conditions as may be prescribed,
 no company shall enter into any contract or
arrangement with a related party
 with respect to specified transactions.
Contracts with whom? – “Related Party” means
 a director or his relative;
 a key managerial personnel or his relative;
1. "key managerial personnel" means—
 CEO or the MD or the Manager;
 Company secretary;
 Whole-time director;
 Chief Financial Officer; and
 such other officer as may be prescribed;
 a firm, in which a director, manager or his relative is
a partner;
 a private company in which a director or manager or
his relative is a member or director;
 a public company in which a director or manager is a
director AND holds along with his relatives, more
than 2% of its paid-up share capital;
 any body corporate whose Board of Directors,
managing director or manager is accustomed to act
in accordance with the advice, directions or
instructions of a director or manager
 any person on whose advice, directions or
instructions a director or manager is accustomed to
act
 Provided that nothing shall apply in the above 2
cases to the advice, directions or instructions given
in a professional capacity;
 any company which is—
 a holding, subsidiary or an associate company of
such company; or
 a subsidiary of a holding company to which it is also
a subsidiary;
 such other person as may be prescribed;
(A director or KMP of the holding company or his
relative with reference to a company shall be deemed to
be a related party.)
 Associate Company
1. “associate company”, in relation to another
company, means a company in which that other
company has a significant influence, but which is not
a subsidiary company of the company having such
influence and includes a joint venture company.
2. Explanation.—For the purposes of this clause,
“significant influence” means control of at least 20%
of total share capital, or of business decisions under
an agreement;
 Transactions and approvals in Sec 188
1.sale, purchase or supply of any goods or materials
either directly or through agents
 The word ‘goods or materials’ covered in this section includes
capital goods.
 All cases Board approval at Board Meeting.
 Special resolution required if the transaction value exceeds
10 % of Turnover of Previous Financial Year or ₹ 100 crores;
whichever is lower.
2.selling or disposing of, or buying, property
of any kind either directly or through agents
 Property includes immovable property.
 It could also cover intellectual property rights –
patents, trademarks, copyrights, software, brands
etc.
 All cases Board approval at Board Meeting.
 Special resolution required if the transaction value
exceeds 10 % of Networth of Previous Financial
Year or ₹100 crores; whichever is lower.
 3.leasing of property of any kind;
 Leasing could include franchise
 All cases Board approval at Board Meeting.
 Special resolution required if the transaction value
exceeds 10 % of Networth or 10 % of Turnover of
Previous Financial Year or ₹100 crores; whichever is
lower.
4.availing or rendering of any services either directly
or through agents

 Services could mean business and commercial

services.
 Professional services were exempted in section 297
of Companies Act, 1956 through MCA clarification.
 All cases Board approval at Board Meeting.
 Special resolution required if the transaction value
exceeds 10 % of turnover of Previous Financial
Year or ₹50 crores; whichever is lower.
 Calculation of Limits

The limits specified in the above 4 cases shall

apply for transaction/transactions to be entered
into either individually or taken together with the
previous transactions during a financial year.
5. such related party's appointment to any office or
place of profit in the company, its subsidiary
company or associate company
 “office or place of profit" means any office or
place—
 where such office or place is held by a
director, if the director holding it receives from
the company anything by way of remuneration
over and above the remuneration to which he
is entitled as director, by way of salary, fee,
commission, perquisites, any rent-free
accommodation, or otherwise;
 where such office or place is held by an
individual other than a director or by any firm,
private company or other body corporate, if
the individual, firm, private company or body
corporate holding it receives from the
company anything by way of remuneration,
salary, fee, commission, perquisites, any rent-
free accommodation, or otherwise;
 All cases Board approval at Board Meeting.
 Special resolution required if the monthly
remuneration exceed Rs 2,50,000.
 In the Ravinder Kumar Singhal case, it was
held that, perquisites accruing on monthly
basis should be included and not total yearly
earning. So annual payments like bonus,
leave encashment, reimbursement of medical
expenses are not to be included.
 6. underwriting the subscription of any securities
or derivatives thereof, of the company
 All cases Board approval at Board Meeting.
 Special resolution required if the remuneration
exceeds 1 % of Networth of the Previous Financial
Year.
 Procedure under sec 188
1. The consent of the board shall be required for all
specified transactions with “related party.”
2. Such consent shall be accorded only by passing a
resolution at the Board meeting and not by
circulation.
3. The notice of the Board meeting at which the
resolution is proposed to be moved shall disclose-
 name of the related party and nature of relationship;
 nature, duration of the contract and particulars of the
contract or arrangement;
 material terms of the contract or arrangement
including the value, if any;
 any advance paid or received for the contract or
arrangement, if any; and
 Manner of determining the pricing and commercial
terms, both included as part of contract and not
considered as part of contract.
 Whether all factors relevant to the contract have
been considered, if not, details of factors not
considered with the rationale of not considering
those factors.
 any other information relevant or important for the
Board to take a decision on the proposed
transaction.
4. Where any director is interested in any contract or
arrangement with a related party, such director shall
not be present at the meeting during discussions on
the subject matter of the resolution relating to such
contract or arrangement.
5. The explanatory statement to the notice of a general
meeting shall contain the following particulars:
 name of the related party ;
 name of the director/KMP who is related;
 nature of relationship;
 nature, material terms, monetary value and
particulars of the contract or arrangement;
 any other information relevant/important for the
members to take a decision
6. No member of the company shall vote on such
special resolution, to approve any contract referred
to in this section, if such member is a related party to
the contract.
7. In case of wholly owned subsidiary, the special
resolution passed by the holding company shall be
sufficient for the purpose of entering into the
transactions between wholly owned subsidiary and
holding company.
8. Every contract or arrangement entered into under
sub-section (1)
 shall be referred to in the Board's report to the
shareholders
 along with the justification for entering into such
contract or arrangement.
9. The interested director in the related party
transaction under section 188 shall disclose his
interest in the Board Meeting as specified in section
184.
 Exemptions under sec 188
 This section will not apply to any transactions
entered into by the company
in its ordinary course of business and
transactions which are on arm's length basis.
 “Arm's length transaction" means a transaction
between two related parties that is conducted as if
they were unrelated, so that there is no conflict of
interest.
 Consequences of Violation of sec 188
1. Where any contract or arrangement is entered into
by a director or any other employee,
 without obtaining the consent of the Board or
approval by a special resolution and if it is not
ratified by the Board or, by the shareholders at a
meeting within three months,
 such contract or arrangement
 shall be voidable at the option of the Board and
 if the contract or arrangement is with a related party
to any director, or is authorised by any other director,
the directors concerned shall indemnify the company
against any loss incurred by it.
2. It shall be open to the company
 to proceed against a director or any other employee
who had entered into such contract or arrangement
in contravention of this section
 for recovery of any loss sustained by it as a result of
such contract or arrangement.
3. The defaulting director/employees shall -
1. in case of listed company, be punishable with
imprisonment upto one year or with fine which shall
not be less than Rs. 25,000/- but which may extend
to Rs 5,00,000/- or with both; and
2. (ii) in case of any other company, be punishable with
fine which shall not be less than Rs 25,000/- but
which may extend to Rs 5,00,000/-.
4. Any person who has been convicted of the offence
dealing with related party transactions under section
188
 at any time during the last preceding 5 years shall be
disqualified from being appointed as director of any
company (section 164) and
 shall vacate the office under section 167.
 Other Issues in section 188
1. The section covers
oral and written contracts.
contract for present sale of goods
contract to sell goods at a future time.
2. The section does not contemplate a general
consent of the board but a consent referable to
each particular or specific contract.
3. Section 188 applies to public as well as private
companies.
 Disclosure of Interest by directors
 Section 184(1) and 184(2) are two separate sub-
sections with specific duties for directors.
 The former sub-section talks of general disclosure,
the later talks of specific disclosure.
 In both the sub-sections nature of concern and
interest also to be disclosed.
Disclosure of Interest by directors – sec 184(1)
1. Every director shall
 at the first Board Meeting, in which he participates as
a director, and
 thereafter at the first Board meeting in every financial
year or
 whenever there is any change in the disclosures
already made, then at the first Board meeting held
after such change,
 disclose his concern or interest
 in any company or companies or bodies corporate,
firms, or other association of individuals which shall
include the shareholding by giving a notice in writing
in Form No. MBP 1.
2. It shall be the duty of the director giving notice of
interest to cause it to be disclosed at the meeting
held immediately after the date of the notice.
3. All such notices
 shall be kept at the registered office
 shall be preserved for a period of eight years from
the end of the financial year to which it relates and
 shall be kept in the custody of the company secretary
or any other person authorized by the Board for the
purpose.
1. ‘Body corporate' includes Pvt company, Public
company, Corporations and Foreign company.
2. ‘Firm' includes not only ‘partnerships’, but also -sole
proprietary concern, HUF, association of persons,
etc.
3. In sec 184(1), Director’s relatives interests need not
be disclosed.
4. Sec 184(1) disclosure is irrespective of contracts
actually entered by the company with the related
party.
 Interested Director – sec 2(49)
1. “Interested director” means
2. a director who is in any way, whether by himself or
through any of
3. his relatives or
4. firm, body corporate or other association of
individuals in which he or any of his relatives is a
partner, director or a member,
5. interested in a contract or arrangement, or proposed
contract or arrangement, entered into or to be
entered into by or on behalf of a company;
 Interested Director =
Director Relatives

Member or
Member Partner Director

Other association
of individuals Firm Body Corporate
Specific disclosure of interest – sec 184(2)
1. Every director of a company who is in any way,
 whether directly or indirectly,
 concerned or interested
 in a contract or arrangement
 or proposed contract or arrangement
 entered into or to be entered into
(a) with a body corporate in which
 such director or such director in association with any other
director,
 holds more than 2% shareholding of that body corporate, or
 is a promoter, manager, CEO of that body corporate;
(b) with a firm or other entity in which,
 such director is a partner, owner or member, as the case
may be,
shall disclose
 the nature of his concern or interest at the meeting of
the Board in which the contract or arrangement is
discussed
 and shall not participate in such meeting:
 Contract With

Company >2% shares

Promoter
Body
Corporate
Manager

CEO
Interested Director

Partner Firm

Owner
Other
Entity
Member
 Contract With

Company >2% shares

Promoter
Body
Corporate
Manager

CEO
Interested Director
1. Director
2. Relatives
Partner Firm
3. Body Corporate
4. Firm
5. Other Association
of Individuals Owner
Other
Entity
Member
2. Where any director
 who is not so concerned or interested at the time of entering
into such contract or arrangement,
 he shall, if he becomes concerned or interested after the
contract or arrangement is entered into,
 disclose his concern or interest forthwith when he becomes
concerned or interested or
 at the first meeting of the Board held after he becomes so
concerned or interested.
 Disclosure of nature of concern and interest
1. The nature of the interest must also be disclosed
and not the fact of interest.
2. This normally involves disclosing the exact extent of
the profit made by the interested director.
Disclosure under sec 184(2) in which BM

1.Under section 184(2) in respect of a

 proposed contract to be entered
 coming up to board meeting level
 and where he is already a director
 and where the directors are already interested,

the disclosure shall be made at that Board meeting

at which contract was first taken into
consideration.
2. In respect of all other contracts,
 disclose his concern or interest forthwith when he becomes
concerned or interested or
 at the first meeting of the Board held after he becomes so
concerned or interested.
 Consequence of violation of sec 184
1. A contract or arrangement entered into by the
company
 without disclosure under sub-section (2) or
 with participation by a director who is concerned or
interested in any way, directly or indirectly, in the contract
or arrangement,
 shall be voidable at the option of the company.
2. If a director contravenes
 the provisions of sub-section (1) or sub-section (2),
 such director shall be punishable with imprisonment for a
term which may extend to one year or
 with fine which shall not be less than Rs. 50,000/- but which
may extend to Rs. 1,00,000/-, or with both.
3. Violation of section 184 will also lead to vacation of office of
director as specified in section 167.
 Non applicability of section - 184(5)(b)
Nothing in this section shall apply
 to any contract or arrangement entered into or to be
entered into
 between two companies
 where any of the directors of the one company
 or two or more of them together holds or hold
 not more than 2% of the paid-up share capital in the
other company.
1. The purpose of the subsection, is to ignore small
shareholding interests in the other company.
2. Since the expression used is ‘not more than 2%’,
holding ‘exactly 2% of the paid up share capital’
does not require disclosure.
3. The directors should disclose his interest, even if his
holding is less than 2% of the paid-up capital in case
of corporation or foreign company.
4. Shareholding by
 any of the directors of the one company or
 two or more of them together
shall be considered.
5. Regarding difficulty in ascertaining the
 other directors shareholding in the second
company
 the department is of the view that it should not be
difficult for the concerned directors to ascertain the
shareholdings in the other company.
6. If the director is otherwise interested other than
shareholding interest, his holding of less than 2% of
the paid-up capital of the company is not relevant.
7. The date on which the contract is entered into is the
point of time for ascertaining whether or not such
holdings exceed the 2% limit.
8. Even where shares are held by a director non-
beneficially, say on behalf of a trust, disclosure of
interest would be necessary, since the trustee is the
owner of the share. - Dept's Clarification
9. Where shares held by a director are transferred by
him, but he continues to be the registered holder, for
the transfer has not been registered, still he should
disclose his interest in the shares - Dept's
Clarification
 Applicability of section 184 to various
directorships
1. It applies to directors nominated by the Govt and,
thus, to other nominee directors. - Dept's
Clarification.
2. An alternate director as well as original director
should also send the disclosure in writing.