2. 571December 1 To 15, 2015 u Taxmann’s Corporate Professionals Today u Vol. 34 u 25
Section 185 vs. Section 186 of Companies Act,
2013 – A case of head on collision scenario
Whether A Pvt. Ltd. can give loan by following the procedure
of section 186 to B Pvt. Ltd. having common director and is not
qualified to get exemptions as mentioned in section 185 irrespective
of the restriction imposed in section 185?
Section 186(1) of the Companies Act, 2013 state that “Without
prejudice to the provisions contained in this Act", a company
shall unless otherwise prescribed, make investment through not
more than two layers of investment companies. Further, in terms
of sub-sections (2) and (3) of section 186 direct or indirect loan,
investment, guarantee or security exceeding 60% of the paid up
share capital and free reserves and securities premium account or
100% of the free reserves and securities premium account require
prior approval of shareholders by passing special resolution. This
means that if the aggregate of the existing and proposed, loan,
investment, guarantee or security is less than the above limit then
approval of Board shall be enough and no need to obtain approval
of shareholders.
Section 185(1) states that “Save as otherwise provided in this Act”,
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. Section 185 shall not be
applicable to Govt. company, Nidhi company and also private limited
company. The exemption available to private limited company shall
be subject to fulfilment of all the following conditions:–
(a) Private company in whose share capital no other body corporate
has invested any money;
(b) If the borrowing of private company from bank or financial
institutions or any body corporate is less than twice of its
paid up share capital or ` 50 cr. whichever is lower; and
(c) Such company has no default in repayment of such borrow-
ings subsisting at the time of making transactions under this
section.
Bhuwneshwar Mishra
General Manager,
CS, GHCL Ltd.

3. 572
Section 185 vs. Section 186 of Companies Act, 2013
December 1 To 15, 2015 u Taxmann’s Corporate Professionals Today u Vol. 34 u 26
Illustration: Reflecting conflict between
sections 185 and 186
Let “A” and “B” are the private limited
companies having common directors. “A” has
made payment of certain outstanding bill of
“B” to various third parties. “A” in its books
of account treated this as an unsecured debt
to “B” and “B” has also given the similar
treatment as “unsecured loan from A”. Let us
further assume that both the companies did
not qualify to get exemption under section 185
and they are not the investment companies.
Assuming the quantum of loan from “A” to
“B” is more than 60% of the paid up capital
and free reserves and securities premium
account and 100% of the free reserves and
securities premium account. In order to
comply with the requirement of section 186,
“A” has obtained approval of shareholders
by passing special resolution.
Now the pertinent question is-
Whether the transaction between “A” and “B”
is prohibited by section 185 on the condition
that both the company have common director
and does not qualify the conditions of
exemption as available to private company?
or
Whether compliance of section 186 is sufficient
and section 185 in this regard shall be ignored.
Interpretation - “Save as otherwise provided
in this Act” as mentioned in section 185
The answer to the above query can be given
in the light of various judicial precedents
and principle of interpretation.
Let us assume that section 185 is applicable in
this transaction as “A” has paid outstanding
bill of “B” inspite of the fact that both
have common directors. Hence as per the
Explanation (c) of sub-section (1) of section
185, the director of “A” shall be deemed to
be interested in “B” and hence making of
payment by “A” on behalf of “B” amount
to a loan given to a director or to the entity
in which director is interested.
But above argument gets diluted when we
read the opening para of the section 185, i.e.,
“save as otherwise provided in this Act………”
The expression “save as otherwise provided
in this Act” is called a saving clause and
in a statute, it seeks to create an exception
on a special item out of the general things
mentioned in the statute; seek to save or protect
what is provided in any other provision of
the statute on the same subject. The phrase
“save as otherwise provided in this Act”
is employed in statutory drafting when a
section using this phrase seeks to protect or
exclude the operation of some other section
which contains a similar provision.
In other words, the expression “save as
otherwise provided in this Act” seeks to keep
applicability of any other provision on the
same subject unaffected besides the provision
in which these words are used or create an
exception in respect of any provision on the
same subject.
The Supreme Court in the matter of Lalu
Prasad Yadav v. State of Bihar AIR 2010
SC 1561 with reference to section 378 of the
Code of Criminal Procedure, 1973 held that:—
‘“Save as otherwise provided in sub-
section (2)” - are in the nature of
exception intended to exclude the class
of cases mentioned in sub-section (2)
out of operation of the body of sub-
section (1). These words have no other
meaning in the context but to qualify
the operation of sub-section (1) and take
out of its purview two types of cases
referred in sub-section (2).’
In Webster Comprehensive Dictionary
(International Edition), the word “save” is
defined as follows:- “save.- Except; but - 1.
Except; but 2. Archaic Unless”.
In Williams v. Milotin, the High Court of
Australia, while construing the words “save
as otherwise provided in this Act” stated:–
‘....In fact the words “save as otherwise
provided in this Act” are a reflexion of
the words “except” - or “save” - “as
hereinafter excepted”’.
In light of the above we may say that the
opening para “save as otherwise provided
in this Act” would indicate that due credit

4. 573
Section 185 vs. Section 186 of Companies Act, 2013
December 1 To 15, 2015 u Taxmann’s Corporate Professionals Today u Vol. 34 u 27
to be given to section 179 (power of Board);
section 186 (loans and investment by company)
and such other provisions of the Act dealing
with the loan, guarantee, security, investment
etc. Hence, we may also say that section 185
and even section 179 are general sections as
compare to section 186 and therefore, both
the sections cannot be interpreted in absence
of section 186 which is more focussed and
special provisions dealing with loan and
investment by company.
Interpretation - “Without prejudice” as
mentioned in section 186
The term “prejudice” means damage or
detriment to one’s legal rights or claims1
.
“Dismissal without prejudice” means a dismissal
that does not bar the plaintiff from refiling
the lawsuit within the applicable limitations
period whereas “dismissal with prejudice”
means after an adjudication on the merits,
barring the plaintiff from prosecuting any later
law suit on the same claims, i.e., if after a
dismissal with prejudice, the plaintiff files a
later suit on the same claim, the defendant
in the later suit can assert the defense of
res judicata (claim preclusion). Hence, a
provision enacted “without prejudice” to
another provision has not the effect of affecting
the operation of the other provision and any
action taken under it must not be inconsistent
with such other provision2
. We may also say
that the expression “without prejudice to
the provisions contained in this Act” means
without affecting any other provision of the
Act or in addition to any other provision of
the Act.3
In the matter of Dwarkadas Agarwall
v. Dharam Chand Jain AIR 1954 Cal. 583 it
was held that the effect of the insertion of
that qualifying phrase, i.e., “without prejudice
to the provisions contained in….” is that
the obligation lying on the Court to direct
a winding up of a banking company in the
circumstances stated in the section, would
be subject to the exception that the Court
would be at liberty to exercise the powers
conferred by section 37.
Section 186 of the Companies Act, 2013
start with the phrase “without prejudice
to the provisions contained in this Act”
which means, the provisions of section 186
would not affect the operation of the other
provisions contained in this Act. And any
action taken under section 186 related to
“inter-corporate loans, investments, guarantee
or security” should not be inconsistent with
other provisions of the Act such as section
179(1)(e) & (f) which gives power to the
Board of Directors to invest the fund of the
company and to grant loans or give guarantee
or provide security in respect of the loans.
Hon’ble Justice Venkatarama Aiyar stated
that “the rule of construction is well settled
that when there are in an enactment two
provisions which cannot be reconciled with
each other, they should be so interpreted
that, if possible, effect should be given to
both. This is what is known as the rule of
Harmonious Construction”4
. Thus a construction
that reduces one of the provisions to a
“use less lumber” or “dead letter” is not
harmonious construction.
Hence, applying the above principle of
interpretation, we may say that section 186 is
a special provision dealing with transaction
between body corporate has overriding effect
(to the extent it is not inconsistent with
other provisions of the Act) over the general
provision contained in section 179 and
section 185. Hence, provisions stipulated in
section 186 for loan, investment, guarantee or
security will cover the inter-corporate loan,
investment, guarantee or security whereas
general provisions mentioned in section 179
and section 185 would deal with the rest
of the kind of loans, investment, guarantee
or security.
Further, proviso to section 179(3) provides the
delegation of power to the Committee of the
Board of Director or Managing Director or
any other Principle Officer of the Company
but no such provisions are contained in
section 186. Hence in absence of any specific
prohibition in section 186 and in the light of
interpretation of the words “without prejudice
to the provisions of this Act”, and applying
the principle of harmonious construction, we
may say that Board’s power under section 186

5. 574
Section 185 vs. Section 186 of Companies Act, 2013
December 1 To 15, 2015 u Taxmann’s Corporate Professionals Today u Vol. 34 u 28
may be delegated in accordance with section
179 by passing resolution at a meeting of
the Board of Directors.
Section 185 v. 186: Applicability of one puts
other in trouble
In the given illustration if company “A”
choose to comply with section 185 then it
is prohibited from making any payment on
behalf of “B” on the ground that both have
common director and “A” does not qualify
to avail exemption provided vide notification
number 1-1-2014 – CLV, dated June 5, 2014.
The payment on behalf of “B” by “A” in
terms of Explanation (‘c’) of section 185(1)
would amount to a loan given to an entity
in which the director is interested.
If this argument, for the time being assumed
to be logical, then section 186 is redundant
and of no use. Hence, principle of harmonious
construction for interpretation of statutes
gets diluted.
Principle of supremacy of Special Provision
over General Provision
There is a settled law that wherever there
is a conflict between general provision and
special provision, special provision prevails.
It is the duty of the courts to avoid that
and wherever possible to do so, to construe
provisions which appear to conflict so that
they harmonise5
. Provision of one section of
the statute cannot be used to defeat those
of another unless it is impossible to effect
reconciliation between them6
.
In Pretty v. Solly (1859-53 ER 1032) quoted
in Craies on Statute Law at p.206, 6th
Edition
Romilly, M.R. mentioned the rule thus:—
“The rule is that whenever there is
a particular enactment and a general
enactment in the same statute and the
latter, taken in its most comprehensive
sense, would overrule the former, the
particular enactment must be operative,
and the general enactment must be taken
into effect only the other parts of the
statute to which it may properly apply.”
In the matter of J K Cotton Spg. and Wvg.
Mills Co. Ltd v. State of UP AIR 1961 SC
1170, it was held that “whether there is a
conflict between special provision and general
provision, the special provision prevails over
the general provision; the general provision
applies only to such cases which are not
covered by the specific provision; the rule
applies to resolve conflict between different
provision in different statutes as well as in
same statute.” Further, Justice G. P. Singh in
his book “Principle of Statutory Interpretation”
stated that “a familiar approach in such a case
is to find out which of the two apparently
conflicting provisions is more general and
which is more specific and to construe the
more general one so as to the more specific.”
N. S. Bindra’s “Interpretation of Statutes”
also agrees that “where there is a general
provision which, if applied, in its entirety,
would neutralise a special provision dealing
with the same subject matter, the special
provision must be read as a proviso to the
general provision, and the general provision,
insofar as it is inconsistent with the special
provision, must be deemed not to apply.” It
was held in the matter of Mangilal v. State
of Rajasthan [1997] AIHC 1892 (Raj.) that
when a specific provision is made for certain
purpose, under the rules of interpretation of
law, it excludes the general provision.
If there is an apparent conflict between two
independent provisions of the law, the special
provision must prevail.7
If a special provision
has been made on a certain matter, that matter
is excluded from the general provision.8
A
construction which reduces the statute to a
futility has to be avoided. A statute or any
enacting provision therein must be so construed
as to make it effective and operative on the
principle expressed in maxim ut res magis
valeat quam pereat, i.e., a liberal construction
should be put upon written instruments, so
as to uphold them, if possible, and carry
into effect the intention of the parties. If
the choice is between two interpretations,
the narrower of which would fail to achieve
the manifest purpose of the legislation court
should avoid a construction which would
reduce the legislation to futility, and should
rather accept the bolder construction, based

6. 575
Section 185 vs. Section 186 of Companies Act, 2013
December 1 To 15, 2015 u Taxmann’s Corporate Professionals Today u Vol. 34 u 29
on the view that Parliament would legislate
only for the purpose of bringing about an
effective result. Whenever it is possible to
do so, it must be done to construe the
provisions which appear to conflict so that
they harmonise. It should not be lightly
assumed that Parliament had given with one
hand what it took way with the other. The
provisions of one section of the statute cannot
be used to defeat those of another unless it
is impossible to effect reconciliation between
them. Thus a construction that reduces one
of the provisions of a “useless lumber” or
dead letter is not harmonised construction9
.
This principle is expressed in the Latin maxim
Generalia specialibus non-derogant (also known
as the rule of implied exception) meaning
general things do not derogate from special
things; universal things do not detract from
specific things. This well known proposition of
law says that when a matter falls under any
specific provision, then it must be governed
by that provision and not by the general
provision. The general provision must admit
to the specific provisions of law. It is a basic
principle of statutory interpretation.
When there is a conflict between a general
and a special provision, the latter shall prevail.
The said principle has been stated in Craies
on Statute Law, 5th Edn., at P. 205, thus:—
“The rule is that whenever there is a particular
enactment and a general enactment in the
same statute, and the latter, taken in its
most comprehensive sense, would overrule
the former, the particular enactment must be
operative, and the general enactment must be
taken to affect only the other parts of the
statute to which it may properly apply10
.”
Conclusion
Keeping in view the above discussion, we
may say that by using the word “save as
otherwise provided in this Act” in section
185, Legislature has made its intention clear
that this provision is general provision and
will be implemented while giving due credit
to specific provisions such as section 186
which deals with the loan and investment by
company. Section 186 commenced with the
phrase “without prejudice to the provisions
contained in this Act” which means in addition
to other provision and without affecting the
operation of other provisions. While implementing
section 185 in the given illustration, section
186 becomes redundant which is against the
principle of harmonious construction. On
the other hand if we implement section 186
then prohibition imposed under section 185
becomes redundant. Hence, for the purpose
of given illustration both the sections cannot
be implemented at the same time.
The only option left is to apply principle
of supremacy of special provision over the
general provision as discussed hereinabove.
Hence, in the light of above we may say that
by passing Special Resolution “A” can give
loan to “B” even though they have common
director and restriction is imposed under
section 185. However, in order to remove any
controversy it is expected from the Ministry
of Corporate Affairs to give clear guidance
on above kind of transaction.
lll
1. Black’s Law Dictionary, by Bryan A Garner 8th
Edition Page 1218.
2. ITO v. Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. AIR 1976 SC 43. Source: Principle of Statutory Inter-
pretation – Justice G P Singh – 8th
Edition – Page – 294.
3. Union of India v. Sneha Khemka [2004] 51 SCL 26 (SC).
4. Venkataramana Devaru v. State of Mysore AIR 1958 SC 255.
5. Raja Krushna Bose v. Binod Kanungo AIR 1954 SC 202.
6. Kailash Chandra v. Mukundi Lal AIR 2002 SC 829.
7. Union of India v. India Fisheries (P.) Ltd. [1965] 35 Comp. Case 669 (SC).
8. Venkateshwar Rao v. Govt. of Andhra Pradesh AIR 1966 SC 828.
9. Income Tax Commissioner v. Hindustan Bulk Carriers AIR 2003 SC 3942.
10. CIT v. Shahzada Nand & Sons AIR 1966 SC 1342.