Neha Redekar
Quick Summary
Pursuant to the provisions of section 185(1) of the Companies Act, 2013 no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by: Any director of the company,
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FAQ :
Section 185(1) generally prohibits companies from advancing loans, guarantees, or securities to any director of the company, of its holding company, or to their partners or relatives, or to firms where such directors or relatives are partners.
A company can provide loans, guarantees, or securities to persons in whom directors are interested if a special resolution is passed in a general meeting, and the loan is utilised for the borrowing company's principal business activities.
Yes, exceptions include loans to managing or whole-time directors as part of service conditions, loans by companies whose business is lending, and loans to wholly-owned subsidiaries.
Contravention can lead to penalties including fines for the company (Rs. 5,00,000 to Rs. 25,00,000), imprisonment or fines for defaulting officers (up to 6 months imprisonment or Rs. 5,00,000 to Rs. 25,00,000 fine), and imprisonment or fines for the loan recipient (up to 6 months imprisonment or Rs. 5,00,000 to Rs. 25,00,000 fine, or both).
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