Section 185-Loans to directors-Changes in New Companies Act 2013 - Professionals - Legal - TIK Share
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Section 185-Loans to directors-Changes in New Companies Act 2013

Vedanta Deshika


Sec 185 corresponds to Sec 295 of the Companies Act, 1956.

As per Sec 185 no company whether public or private can give any loan ( including loan represented by book debt) or provide any security or guarantee in connection with a loan to a director or ANY OTHER PERSON IN WHOM DIRECTOR IS INTERESTED

Exceptions are given below

  1. Company can give Loan to MD/WTD without approval of shareholders as a part of CONDITIONS OF SERVICE extended by company to all its EMPLOYEES
  2. Company may give loan under a scheme approved by members by a SPECIAL RESOLUTION
  3. Any company whose business is to provide loan or guarantee provided the interest on loan is not less than BANK RATE declared by RBI

The requirement of permission of Central Government for giving loans has been dispensed with. Also, the exemption given to loan granted, guarantee or security provided by any holding company to its subsidiary has been dispensed with.

Exemptions granted to Private Company has also been dispensed with

Penal Consequences

Only the Company, Director or Person to whom loan, guarantee or security is given are puinishable

Company - Min 5 lakhs to Max 25 Lakhs

Directors and others - Imprisonment upto 6 months plus Fine Min 5 lakhs , Max 25 lakhs

Rahul Rai


Who are the person can be named as in which directors are interested?


Vedanta Deshika


Very good doubt rahul rai , you hit the nail on the head,

The following persons have been defined under the Explanation to the Section 185

1.Any DIRECTOR of the lending company ;

Any Director of a company which is the Holding Company ;

Any partner or relative of any such Director

2. ANY FIRM in which director/relative of director is a partner

3. ANY PRIVATE COMPANY of which such director is a Member/Director

4. ANY BODY CORPORATE at which 25% or more Voting power is excercised by Directors individually or collectively

5. ANY BODY CORPORATE , the BOD, MD or manager  of which are accustomed to act in accordance with directions of the DIRECTOR or BOD of LENDING COMPANY