Section 185

Pvt ltd 700 views 2 replies

Jim Cyriac

CA in Practice

44 Points Posted on 11 February 2014

185. (1) Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person:

Provided that nothing contained in this sub-section shall apply to—

(a) the giving of any loan to a managing or whole-time director—

(i) as a part of the conditions of service extended by the company to all its employees; or

(ii) pursuant to any scheme approved by the members by a special resolution; or

(b) a company which in the ordinary course of its business provides loans or gives guarantees or securities for the ue repayment of any loan and in respect of loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.

Can anyone please help me what "pursuant to any scheme approved by the members by a special resolution; or" means??

I believe as per the above if the GM approves with a special resolution then loans can be made to the directors.

Please help

Replies (2)

Vandana J Doshi

Practising Company Secretary

12562 Points Posted on 11 February 2014

HI,

As per the new companies act 2013, loans to directors is strictly prohibited. There are only two exceptions,

firstly such a loan can be made to only an MD/WTD in the same way it might be given to an employee or if it is approved by a SR passed by members. Actually, appointment of an MD/WTD is required to be approved by the members in a GM by an Ordinary resolution. However, it may require a SR if it contains a provisions regarding loans to them.

secondly, if the company's ordinary business is of providing loand and advances, guarantees, etc and interest is charged for the same as per RBI norms.

So accordingly, excepting the two exceptions, loans to directors or their related parties is prohibited.

Hopefully your query is resolved. If not revert here.....

Regards

Jim Cyriac

CA in Practice

44 Points Posted on 11 February 2014

Thanks for the response Vandana,

I am kind of confused, what is the option available for one Pvt Ltd Company to give a loan to the other Pvt company more or less under the same management. Seems like S 185 kinda sealed such an option. is there any other option available