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Sec 185 if companies act 2013

Surbhi gupta (ca) (42 Points)

13 November 2014

please tell me the exact interpretation of sec 185

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ABHINANDAN JAIN (CA Student) (886 Points)
Replied 18 November 2014

Sec 185 of Company act,2013 deals with the Provisions w.r.t the fact whether Loan to directors,etc (i.e. other specified Person [SP]) is allowed or not.

Earlier sec 295 of Compny Act,1956 provides the Loan can be given to directors & other SP subject to prior approval of Central Government.

But Sec185 strictly imposes PROHIBITION on Granting loan to Directors & SP. Now as per new act, No company shall grant loan (even after taking CG permission) to its directors.etc wehether directly or indirectly.

However sec 185 also provides three situation where loan can be given to its Directors & SP.

These situtaions are:

a) Loan is made to MD/WTD provided such Loan is made in pursuant to a condition of service extended by the company to all of its employees

b) Loan is made to MD/WTD provided such Loan is made in pursuant to a scheme approved by the members by passing a Special resloution

c) Loan is made by a company which in the ordinary course of its business provides loans or guarantees or securities for its due payment of any loan. Further, in respect of such loan, interest rate charged must not less than the Bank rate declared by RBI.[Applicable for Banking co. etc]

Above 3 situations are only three cases where a company can grant loan to its directors,etc (i.e. SP)

However in case of situation (a) listed above,If company reserves the right of giving loan in its Loan policy of the company,then planning wud be possible. Draft such policy in such a manner that every employee of the co. can apply for loan, but it is the subject to discretion of company to grant loan depending upon the surplus funds available with the company.

Also,bare section does not uses the word Specified Person, rather it uses word like " to any of its director or to any other person in whom the director is interested"

director or to any other person in whom the director is interested" can be called as SPecified Person. Check list of such person in ur study materal u r reading.

Hope now u'll get it..

Hope nw u'll get it.