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Loan to Directors

May 23, 2015     by 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-

    • INDIVIDUAL:  Director of  lending co., or holding co. or any partner or relative of any such director;
    • FIRM: in which any such director or relative is a partner;
    • Private Limited Company: of which  such director is a director or member;
    • 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;
    • 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.

 

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