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No Loan or Guarantee/Security with respect to any loan is to be given to any Director or to any other person in whom Director is interested.

Meaning of "to any other person in whom Director is interested":

Loan cannot be given if there is:

Nothing in this section shall apply to:

Loan can be given to:

1. Any Company in which Director himself or his/her relative or partner is a Director

1. Managing Director or Whole Time Director

a. as a part of the conditions of services extended by Company to all its employees or

b. pursuant to any scheme approved by members by Special Resolution


2. Any Firm in which any such Director or relative is a partner

2. A Company, which provides loans in normal course of business (interest is not charged at a rate less than Bank rate declared by RBI)

3. Any Private Company of which Director is a Director or member

3. Any loan made by holding Company to its wholly owned subsidiary Company or any guarantee or security.

For Principle Business Activity only

4. Any Body corporate in which the Director or two or more directors hold more than 25% of the voting power.

4. Any guarantee given or security provided by a holding company in respect of loan made by any bank of financial institution to its subsidiary company

For Principle Business Activity only

5. Any Body corporate whose Board of Directors MD or Manager are accustomed to act in accordance with the Directions of the Director or Directors of the lending Company.

Non Applicability of Section 185

1. Government Companies - After taking approval of Administrator (Ministry or State Department)

2. Nidhi Companies - Loan is given to Directors or their relatives in their capacity as members and such transactions shall be mentioned in the Annual Accounts by note.

3. Private Companies, who meet following criteria:

a. In whose Share Capital nobody corporate has invested any money.

b. If the borrowing from banks/ financial institutions/ Body Corporates does not exceed twice the paid up share capital or Rs. 50 Crores, whichever is lower.

c. The company has made no default in repayment of such borrowings subsisting at the time of making transaction under this section.

Penalty for Non-compliance

1. The Company shall be fined with not less than five lakh rupees, which may extend to 25 lakh rupees.

2. 5 Lakh Rupees to 25 Lakh Rupees.from2. The Director or any other person to whom the loan has been advanced shall be punished with imprisonment up to 6 months or fine  


Published by

Raman Singh
(Deputy Manager)
Category Corporate Law   Report

9 Likes   26 Shares   52047 Views


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