A pvt Ltd company creates FDs for an employees education loan as a guarantee to the bank. Nationalised bank then provides the loan to the employee for higher education. Employee then works at the same company after education and repays most of the loan. Then the company decides to liquidate the FDs that were created to repay the outstanding loan balance. Employee is the future director of company and child of the existing owner and MD. Is this an acceptable practice? How would the company accounts be able to show this transaction without raising any red flags? Is this legal?
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Can a pvt ltd company repay employee education loan using fds created for the loan?
Replies (1)
Hi Niranjan!
Your query is covered under section 185 of the Companies Act 2013, which is "Loan to Directors".
According to the section, you can not give loan to directors unless it is a principal business of the company or it is through a general policy applicable for all employees.
In your case, if the second condition is fulfilled then it may be allowed.
For more clarity on the same you can refer to the section here: https://www.mca.gov.in/SearchableActs/Section185.H T M L
Hope it helps! :)
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