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Section 185 of the Companies Act 2013: Loan to Directors, etc

SECTION-185 (Loan to Directors, etc) under CHAPTER-XII (Meeting of Board and its Powers) of the Companies Act, 2013


(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 due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.

(c) any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or

(d) any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company:

Provided that the loans made under clauses (c) and (d) are utilised by the subsidiary company for its principal business activities.

Explanation.—For the purposes of this section, the expression “to any other person in whom director is interested” means—
(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twenty-five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
(e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.
(2) If any loan is advanced or a guarantee or security is given or provided in contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.





Extra Notes for Readers

(1) The Companies Act, 2013 received the assent of the President on the 29th August, 2013 (Published in the Gazette of India, Extraordinary, Part II - Section 1 by Ministry of Law and Justice, Legislative Department on 30th August, 2013) - link


(2) Section 185 of the Companies Act 2013 was notified by MCA Notification S.O. 2754(E) dated 12th September 2013 (w.e.f. 12th September 2013) - link

(3) Relevant rule(s) of the Companies (Meeting of Board and its PowersRules, 2014 (w.e.f. 1st April, 2014) - link
  • Rule 10 - Loans to Director etc. under section 185
[Also check amendments, if any, to the Companies (Meeting of Board and its Powers) Rules, 2014]

(4) After clause (b) of the proviso to sub-section (1) of section 185 of the Companies Act 2013, the clause (c), clause (d) and proviso was inserted by the Companies (Amendment) Act, 2015 (w.e.f. 29th May, 2015 - link).



(5) MCA Clarification -

  • Clarification with regard to section 185 and 186 of the Companies Act, 2013 - loans and advances to employees - General Circular No. 04/2015 dated 10th March, 2015 - link
(6) Nidhis(Nidhi Companies) - MCA Notification G.S.R. 465(E) dated 5th June 2015 - link

Sl. No.
Provisions of the Companies Act, 2013
Exceptions, modifications and adaptations
10.
Section 185
Shall not apply, provided the loan is given to a director or his relative in their capacity as members and such transaction is disclosed in the annual accounts by a note.

(7) Specified IFSC Private Company - MCA Notification G.S.R. 09(E) dated 4th January, 2017 - link 

Serial
Number
Provisions of the Companies Act, 2013 (18 of 2013)
Exceptions/Modifications/Adaptations
34.
Sub-section (1) of section 185
In the Explanation, for clause (c), the following clause shall be substituted, namely:-
“(c) any private company of which any such director is a director or member in which director of the lending company do not have direct or indirect shareholding through themselves or through their relatives and a special resolution is passed to this effect.”.

(8) Specified IFSC Public Company - MCA Notification G.S.R. 08(E) dated 4th January, 2017 - link

Serial
Number
Provisions of the Companies Act, 2013 (18 of 2013)
Exceptions/Modifications/Adaptations
53.
Sub-section (1) of section 185
In the Explanation, for clause (c), the following clause shall be substituted, namely:-
“(c) any private company of which any such director is a director or member in which director of the lending company do not have direct or indirect shareholding through themselves or through their relatives and a special resolution is passed to this effect;”.

(9) Private Companies - MCA Notification G.S.R. 464(E) dated 5th June 2015 - link

Serial
Number
Chapter/Section number/Sub-section(s) in the Companies Act, 2013
Exceptions/Modifications/Adaptations
14.
Chapter XII, section 185.
Shall not apply to a private company –
(a) in whose share capital no other body corporate has invested any money;
(b) if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and
(c) such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this section.

(10) Govt. Companies - MCA Notification G.S.R. 463(E) dated 5th June 2015 - link

Sl. No.
Chapter Number/Section number/Sub-section(s) in the Companies Act, 2013
Exceptions, Modifications and Adaptations
24.
Chapter XII, section 185.
Shall not apply to Government company in case such company obtains approval of the Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may be, the State Government before making any loan or giving any guarantee or providing any security under the section.









This page was last updated on 2nd April, 2017.

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