Hi friends...I have a query regarding loan to directors u/s 185 of the Co Act, 2013
1. Can a company give loan to a trust (educational/charitable/religious) in which the director of the company or relatives of the director are trustees? Will such a loan be in violation os Section 185 of the Co Act, 2013?
my view is that there shoud be no restriction...Because,
1.the loan is given only to a trust in which the director/relative is a trustee. It is not given directly/indirectly to the director or his relative.
2. The explanation to section 185(1) speaks of only firm, private company and body corporate...A trust is not a body corporate.Plus, the explanation to section 185(1) is an exhaustive definition and not an inclusive one because it says - any other person in whom the director is interested "means" and 'not includes'..So, the phrase only means the 5 items listed in clause (a) to (e).
3. The exception provided says that nothing contained in section 185(1) shall apply to a company which in the ordinary course of business advances loan...It cannot be taken as a test for determining applicability of sec 185 to loans granted by a company to persons other than those specified in the explanation to section 185(1).
Thus, according to my interpretation the question of loan to a trust in which director is trustee is outside the ambit of section 185..
Pls, let me know whether I'm correct...In case, I'm wrong, pls correct me providing the reasons
regds,
shruti
CAclubindia
