Section 185 & 186

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 December 2014 A private company is proposing to give a short term loan(6 months tenure at a rate of 12% p.a) to another private company (chairman of the board are common and with one more director common). Common directors does not hold shareholding in first company, whereas one common directors has a shareholding in the second company along with executive directorship.

Further Section 25 company is a promoter of both the company.

Opinion : is this allowable under the provision of section 185 or it can still provide loan by taking approval of its shareholders by passing special resolution under the provision of section 186

Pls advise

c.bakshi

c.bakshi (Expert)
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30 December 2014 no, you can't see the section below
"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"

however, such loan be granted to WTD/MD of the company only if it is a part of conditions of service contract