Can A Private Company Give Loan Or Guarantee For Director Taking Loan From Bank?
As per Section 185(1) a company cannot 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 company.
But as per Notification dated G.S.R 464(E) 5th June, 2015 Section 185 is not applicable to Private Companies if the below mentioned conditions are satisfied:
|1.||Any Body Corporate has not invested in the share capital of such company|
|2.||Private company’s borrowings from banks/Public Financial Institutions/Bodies Corporate is less than twice of its Paid up Share capital or 50 crores whichever is lower|
|3.||That Private company has not defaulted in Repayment of such outstanding borrowings as at the time of making the transaction u/s 185(1) by that Private company|
Therefore as per the abovementioned Section read with Notification we can say that a Private Company satisfying above conditions can advance loan or give Guarantee to the Bank in respect of loan taken by Director of such Private Company.
Now, Lets read this in Harmony with Section 186
As per Section 186 a company cannot give any loan or guarantee or provide security in connection with a loan to any other body corporate or person:
Legal Requirements if the limit exceeds:
CONCLUSION: We can hereby conclude that by complying with certain conditions a company can advance loan to Director or give Guarantee to the Bank in respect of loan taken by Director of such Private Company.
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