Loan to Director – Section 185 of Companies Act, 2013 – Provisions

LOAN TO DIRECTOR

LOAN TO DIRECTOR as per section-185(1)- Company shall not advance any loan, loan by book debt, any guarantee, or any security in connection with any loan –

1. To Directors of the Company.

2. To Directors of its Holding Company

3. To any partner or relative of such Director

4. To firm in which such director is Partner

5. To firm in which relatives of Director is Partner

LOAN TO INTERESTED PERSON WHOM DIRECTOR is interested as per section-185(2)- A company may advance any loan including any loan represented by a book debt, or give any guarantee or provide any security in connection with any loan taken by any person in whom any of the director of the company is interested, subject to the condition that—

1. Special Resolution to be passes at General Meeting and explanatory statement regarding particulars of loan shall be attached with notice of general meeting.

2. Loan shall be utilized by the borrowings company for its principal business activities.

ANY PERSON TO WHOM SUCH DIRECTOR IS INTERESTED SHALL MEANS-

1. Private company in which such director is director or member.

2. Any body corporate in which 25% of total voting power in a general meeting may be exercised by such director or by two or more director together.

3. Any body corporate in which board, managing director or manager are accustomed to act on the directions, instructions given by board, director or director of lending company.

EXEMPTIONS- as per section- 185(3)

1. If loan given to managing director or whole time director as part of service condition and scheme extend to employees of the company also and such scheme shall be passed by special Resolution.

2. Any company whose ordinary course of business to lending money.

3. Any loan given by holding company to its wholly owned subsidiary company, given any guarantee or provide any security by holding company to its wholly owned company.

4. Any guarantee or security given by holding company in respect of loan given by any bank or financial institution to its wholly owned subsidiary company.

Provided that the loans made under clauses (3) and (4) are utilised by the subsidiary company for its principal business activities.

PUNISHMENT as per section-185(4)-

If anybody contravene the provision of the section-185  

1. Company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees

2. Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees; and

3. The director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both