Section 185 of the
Companies Act, 2013
Applicable from: 12th
September, 2013
Corresponding to:
Section 295 of the Companies Act, 1956
Related to: Loan to
Directors
Applicability: Both
public and private limited companies
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.
Therefore, no loan can be
advanced by a company to the following persons:
-
Director
-
Director of
Holding or Subsidiary company
-
Partner or
relative of any such Director
-
Any firm in
which such Director or relative is partner
-
Any other
company in which such Director is a Director
- Any company
or LLP in which not less than 25% of the total voting
power may be exercised individually or jointly by any such Director(s)
- Any
company or LLP, the Board of Directors of which is controlled by any of the
Directors of the lending company
Exemptions:
-
Loans
to Managing Director in accordance with the terms of his appointment
- Loans
to Director as a part of loan to employees in accordance with the conditions of
service applicable to all employees of the company
-
Loan
pursuant to any scheme approved by the members vide special resolution
- A
company which provides loans in the ordinary course of business and interest in
respect of such loans is charged at a rate not less than the bank rate declared
by RBI
Penalties:
- The company
shall be punishable with fine which shall not be less than Rs. 5 lakh but may
extend to Rs. 25 Lakhs
- 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 6 months
or with fine which shall not be less than Rs. 5 Lakhs but may extend to Rs.
25 Lakhs, or with both
Note: Meaning of Relative:
spouse, lateral ascendants up to two levels i.e. father (including step father)
and grandfather, mother and grandmother; lateral descendants on the son’s side
up to two levels i.e son and son’s children, daughter (including step
daughter), her husband and siblings.
