Section 195 of the company act 1956

This query is : Resolved 

19 October 2013

Can a pvt ltd company give loan to director, without any limit, a pvt ltd company is not a subsidiary of public company, having paid up capital Rs.7,53,000/-, can give loan to director & any restriction under companies act & income tax act ?

CMA. CS. Sanjay Gupta (Expert)

20 October 2013

From 12.09.2013 98 section of Companies Act 2013 have come into force and Section 185 deals with loan to director (Corresponding section in Companies Act 1956 - Section 295 & 296).

2. Section 295 of Companies Act 1956 relating to loans to directors did not apply to private companies. Even in case of public companies such transactions could be entered into at the most with the approval of the Central Government.

Now corresponding Section 185 of Companies Act 2013 which has become effective from 12.9.2013 does not provide for such exemption to private companies. It seems the new Act puts total ban on such transactions, excepting loans to MD/WTD as part of conditions of service extended to all employees or pursuant to scheme approved by members by special resolution.

Fine imposed under Section 185(2) of Companies Act 2013---

On Company - Minimum Rs 5 Lacs and may extend to Rs 25 Lacs.

On Director to whom such loan is advanced Imprisonment upto 6 months or fine not less than rs 5 Lacs or which may extend to Rs 25 Lacs.

So please beawre of this new scenario.

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