Loan to Directors
23 May 2015 • Kamini Goyal
Section 185 of Companies Act, 2013
Unless otherwise provided, no company shall directly or indirectly;
- advance any loan to any of its directors or;
- give any guarantee or provide any security to any person in whom director is interested
Exceptions:
a. Giving of any loan to a MD or WTD-
- As a part of the conditions of service
- Pursuant to any scheme approved by the members by SR.
b. A company which provides loans or give guarantees or securities in the ordinary course of its business at a rate not less than the bank rate declared by RBI.
The expression “to any other person in whom director is interested” means-
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- INDIVIDUAL: Director of lending co., or holding co. or any partner or relative of any such director;
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- FIRM: in which any such director or relative is a partner;
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- Private Limited Company: of which such director is a director or member;
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- BODY CORPORATE: at a general meeting of which at least 25 % of voting power may be exercised or “controlled” by such director, or by two or more such directors, together;
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- BODY CORPORATE: Board, Managing Director or manager, whereof is accustomed to act in accordance with the directions or instructions of Board, or of any director or directors, of lending company.
PENALTY:
- Company: Fine shall not be less than Rs. 5 lakh but which may extend to 25 lakh rupees.
- Director or the other person: Imprisonment which may extend to 6 months or with fine which shall not be less than 5 lakh rupees but extend to 25 lakh rupees or both.
