Company Law

Loan to Directors, etc. [S. 185] Also refer XVI. Exemptions to a private company under the Companies Act 2013 - at a glance

Co, directly or indirectly,

  • advance any loan, including any loan represented by a book debt to, or
  • give any guarantee or provide any security in connection with any loan taken by

any director of Co/its Hold Co or any partner/relative of any such director

Not possible

any firm in which any such director/relative is a partner

Not possible

any person in whom any of the director of the Co is interested:

  • any Private Co of which any such director is a director/member
  • any body corporate at a GM of which not < 25% of the total voting power may be exercised/controlled by any such director, or by two or more such directors, together
  • any body corporate, the BoD, MD or manager, whereof is accustomed to act in accordance with the directions or instructions of the BoD, or of any director or directors, of the lending Co

Possible if:-

  • a Spl Reso is passed by the Co in GM (explanatory statement discloses the full particulars of the loans/guarantee given or security provided and the purpose for which the same is proposed to be utilised by the recipient and any other relevant fact); and
  • the loans are utilised by the borrowing Co for its principal business activities

Exception: provisions (restrictions) not applicable to:
  • Loan to MD/WTD
    • As part of conditions of service extended by Co to all employees
    • Pursuant to scheme approved by Spl Reso
  • a Co which in the ordinary course of its business provides loans/gives guarantees or securities for the due repayment of any loan And an interest is charged at a rate not < the rate of prevailing yield of 1/3/5/10 years Govt. security closest to the tenor of the loan
  • any loan made by a Hold Co to its WOS or any guarantee given/security provided by a Hold Co in respect of any loan made to its WOS