# CARO 2020 — Clauses (iii) to (vi): Loans, Investments, Deposits, Cost Records

## Clause (iii) — Loans, Advances, Guarantees & Security Granted

The auditor must report on the company's lending activities:

(a) Aggregate amount during the year, and balance at year-end, of loans/advances/guarantees/security provided to:

Subsidiaries, JVs, associates
Parties other than subsidiaries/JVs/associates

(b) Whether terms & conditions of grants of all loans/advances/guarantees/security are not prejudicial to the company's interest.

(c) For loans & advances: whether a schedule of repayment of principal & interest is stipulated, and whether receipts are regular.

(d) If amount is overdue: state total amount overdue for > 90 days, and whether the company has taken steps for recovery.

(e) Evergreening test — Whether a loan that fell due during the year was renewed/extended, or whether a fresh loan was granted to settle overdues of an existing loan to the same party. If yes — specify aggregate amount and % to total loans during the year. (Not applicable where principal business is lending.)

(f) Whether loans are repayable on demand or without specifying repayment period. If yes — specify aggregate amount, % to total, and aggregate granted to Promoters / Related Parties.

## Clause (iv) — Section 185 & 186 Compliance

For loans, investments, guarantees & security — confirm compliance with Section 185 (loans to directors) and Section 186 (loans & investments by company). Provide details if not complied.

## Clause (v) — Deposits

For deposits or deemed deposits accepted:

Compliance with RBI directives and Sections 73 to 76 of Co. Act
Nature of contraventions, if any
Compliance with orders of Co. Law Board / RBI / Tribunal

## Clause (vi) — Cost Records

Whether maintenance of cost records has been specified by Central Govt under Section 148, and whether such records are actually maintained.

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## Memory Hook

Clauses (iii)–(vi) cover the lending–borrowing–accepting–costing chain:

(iii) loans given
(iv) section 185/186 check
(v) deposits taken
(vi) cost records kept

Worked example

### Example 1

Example — Clause (iii)(e) Evergreening:

Loan of ₹50L was given to ABC Ltd. on 1-Apr-2024, due 31-Mar-2025. On 31-Mar-2025, ABC Ltd. could not repay. The company sanctioned a fresh ₹55L loan to ABC Ltd. on 1-Apr-2025, used to settle the earlier overdue.

Reporting: Auditor must specify aggregate ₹55L and % of this to total loans granted during the year, since the fresh loan was effectively used to settle overdue of an existing loan to the same party.

### Example 2

Example — Clause (iii)(f) Repayable on demand:

XYZ Ltd. granted ₹2 crore loan to its Promoter Mr. A with no documented repayment schedule.

Reporting: Auditor reports — aggregate amount ₹2 crore, % to total loans granted, and explicitly that ₹2 crore was granted to a Promoter with no specified repayment period.

⚠️ Common exam mistakes

Confusing clause (iii)(e) — evergreening reporting does NOT apply to companies whose principal business is lending (NBFCs, banks, etc.)
Forgetting that under clause (iii)(d), the threshold for reporting overdues is >90 days, not 60 or 180 days
Under clause (iv), students often quote only Sec 185 — both Sec 185 AND Sec 186 must be reported
Reporting deposits only under Companies Act and forgetting RBI directives compliance under clause (v)

Bare-Act text 148 · Companies Act, 2013 · click to expand

Section 148 — Central Government may, by order, direct that particulars relating to utilisation of material, labour or other items of cost shall be included in books of account kept by a company belonging to a class specified.

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CARO 2020 - Clauses on Loans, Investments, Deposits & Cost Records

Worked example

⚠️ Common exam mistakes