Section 185: Loan to directors, etc

Section 185: Loan to directors, etc · Complied AI

(1)

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:

Proviso

Provided that nothing contained in this sub-section shall apply to—

(a)

the giving of any loan to a managing or whole-time director—

(i)

as a part of the conditions of service extended by the company to all its employees; or

(ii)

pursuant to any scheme approved by the members by a special resolution; or

(b)

a company which in the ordinary course of its business provides loans or gives guarantees or 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 Reserve Bank of India.

(c)

any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or

(d)

any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company:

Proviso

Provided that the loans made under clauses (c) and (d) are utilised by the subsidiary company for its principal business activities.

Explanation

—For the purposes of this section, the expression “to any other person in whom director is interested” means—

(a)

any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;

(b)

any firm in which any such director or relative is a partner;

(c)

any private company of which any such director is a director or member;

(d)

any body corporate at a general meeting of which not less than twentyfive per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or

(e)

any body corporate, the Board of Directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

Notes, amendments & references (17)

185. Loans to directors, etc. Substituted vide Companies (Amendment) Act, 2017 dated 03.01.2018, Effective from 7th May,2018

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Section 185. Loan to directors, etc 1)This section shall not apply to a Government Company in case such company obtains approval of the Ministry of Department of the Central Government which is administratively in charge of the company, or, as the case may be, the State Government before making any loan or giving any guarantee or providing any security under the section. vide notification no. G.S.R. 463(E) dated 5th June, 2015.

(The exceptions, modifications and adaptations provided above shall be applicable only to those Government Companies which has not committed a default in filing its financial statements under section 137 of the said act or annual return under section 92 of the said act with the registrar, vide notification dated 13th June, 2017)

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2)This section shall not apply to Private Companies –

(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 of its paid up share capital or fifty crore rupees, whichever is lower; and

(c) such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this section. Notification no. G.S.R. 464(E) dated 5th June 2015

(The exceptions, modifications and adaptations provided above shall be applicable only to those Private Companies which has not committed a default in filing its financial statements under section 137 of the said act or annual return under section 92 of the said act with the registrar, vide notification dated 13th June 2017)

3)This section shall not apply to Nidhi Companies, provided the loan is given to a director or his relative in their capacity as members and such transaction is disclosed in the annual accounts by a note. Refer notification no.G.S.R. 465(E) dated 5th June, 2015.

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Refer rule 10 Companies (Meetings of Board and its Powers) Rules,2014. To view the rule, Click Here

Inserted by the Companies (Amendment) Act, 2015 (21 of 2015), notified on 26th May, 2015, with effect from 29th May 2015 vide notification S.O. 1440(E). To view the notifications, Click Here

vide GSR 8(E) and GSR 9(E) dated 04.01.2017.

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