Sec 185 and sec 186

617 views 1 replies

Hello All,

I have a small query.

Section 185 of the companies act 2013, prohibits loan to directors and their relatives. Section uses the terminology Save as otherwise provided in this Act"

and section 186 (2) of the companies act 2013 read as

"No company shall directly or indirectly — (a) give any loan to any person or other body corporate; (b) give any guarantee or provide security in connection with a loan to any other body corporate or person; and (c) acquire by way of subscriptttion, purchase or otherwise, the securities of any other body corporate, exceeding sixty per cent of its paid-up share capital, free reserves and securities premium account or one hundred per cent of its free reserves and securities premium account, whichever is more.

Now my doubt is Loan to director allowed upto 60 % ?

Replies (1)

The word ‘Person’ has not been defined in the Act. Section 2(42) of General Clauses Act 1897 provides that ‘Person’ shall include any company, association or body of individuals, whether incorporated or not. Hence in the light of the above, pursuant to section 186(2), loan to director upto 60% is not permissible. It speaks about intercorporate loan advanced, guarantee given and security provided.

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