Loan To Directors - Section 185 Of The Companies Act, 2013

Neha Redekar | Last updated: 01 November 2021

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Section 185 of the Companies Act, 2013 generally prohibits companies from advancing loans, guarantees, or securities to their directors, their relatives, or specific firms. However, exceptions exist under certain conditions, such as loans to persons in whom directors are interested, provided a special resolution is passed and the loan is for the company's principal business activities. Specific exemptions also apply to managing directors, companies in the business of lending, and wholly-owned subsidiaries. Non-compliance can result in significant fines and imprisonment for the company, its officers, and the recipients of the loan.

Pursuant to the provisions of section 185(1) of the Companies Act, 2013 no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by: Any director of the company, or of a company which is its holding company or any partner or relative of any such director; or Any firm in which any such director or relative is a partner. Thus, the company cannot prov

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About the Author

Neha Redekar

Company Secretary and Compliance Officer

Experienced Company Secretary with expertise in Secretarial and Regulatory compliance monitoring. Specializes in managing compliance frameworks for NBFCs (RBI, NHB, IRDA) and fintech companies. Proven track record in driving the successful implementation of compliance automation tools, optimizing workflows, and enhanci ... Read more

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