Introduction: The Companies Act of 2013 outlines strict provisions and restrictions on loans provided by companies to their directors and closely related parties. In this article, we will dissect the intricate details of Section 185 of the Companies Act, shedding light on how these rules apply to various types of companies – public, government, private, and Nidhi companies.
Public Companies
- Public Company cannot advance Loan, give Guarantee or provide Security in respect of loan to;
- Directors of Company
- Directors of Holding Company
- Partner of Such Directors
- Relative of Such Directors
- Firm in which such directors or relatives are(is) partner
- Public Company can provide Loan, Guarantee or Security
- Public company may advance Loan, give Guarantee or provide Security in respect of loan to any person in which such director is interested subject to;
- Special Resolution passed at General Meeting for such
- Loans are utilized for principal business activity by borrowing company
- Interested Director Means:
- Private Company in which such director is member/director
- Body Corporate in which director holds more than equal to 25% voting power
- Body Corporate which is accustomed to act as per direction of such Director
- Public Company can give loans to Managing Director or Whole Time director;
- As part of condition of service extended to all employees
- Pursuant to scheme approved by Special Resolution
- Interest rate of such loan shall not be less than rate prevailing on Govt. Securities of tenor closer to (1 year, 3 years, 5 years or 10 years)
- Public Company can give loan to its wholly owned subsidiary without any restriction subject to utilization of loan fund in Principal Business Activity
- Public Banks and Public Finance Institution can give such loans to subsidiary without any restriction subject to utilization of loan fund in Principal Business Activity
Government Company
- Such Provisions are not applicable to Government Company
- Provided that such Govt. Company shall obtain a approval of concerned Ministry
- And such Government Company do not default in Filing Annual Returns and Financial Statement
Private Company
- Provisions of this section is not applicable to Private Companies
- Provided that no other body corporate have invested in share capital of such private company
- Provided that, Borrowings from Banks or Public Financial Institutions or Body corporate is lower of
- 200% of Paid Up Share Capital
- ₹50 Crores
- Provided that, such private company have not defaulted repayment of such loans
- And such Private Company do not default in Filing Annual Returns and Financial Statements
Nidhi Company
- Provisions of this section is not applicable to Private Companies
- Provided that loan is given to director or relative in capacity as members
- And such Nidhi company has disclosed such loans in Annual Accounts.
Conclusion: Section 185 of the Companies Act, 2013, plays a pivotal role in regulating loans to directors and close related parties, with different provisions for public, government, private, and Nidhi companies. Understanding these regulations is crucial for companies to ensure compliance with the law while managing their financial affairs. This article provides an in-depth analysis of the various provisions and exceptions, serving as a valuable resource for businesses and stakeholders in navigating the legal landscape of corporate finance.
Author Bio
Sir, what about OPC?
Is this provision applicable or not applicable to OPC?