Loan to director section 185 of companies act, 2013
This query is : Resolved
25 November 2013
1. Can a pvt co. give the loan to a limited co. if its have a common director?
2.can a limited co. give the loan to limited co. if its have a common director?
under section 185 they are related or not?
2.can a limited co. give the loan to limited co. if its have a common director?
under section 185 they are related or not?
25 November 2013
Yes, it will cover under inter corporate loan and the provision of section 372A of the Companies Act, 1956 will be applicable in that case.
29 November 2013
Thanks Mr. Mishra for your prompt reply but still i have a some doubt please help us for resolve this:-
My company gave a loan according to limit prescribed by section 372A of companies act, 1956 but according to section 185 of new act which it prohibit to give the the loan in which directors are interested than if any company give the loan to private company is prohibited but if loan has given to limited company in which the director have below 25 % holding than it is violation of the section 185 or not..
please suggest because in the act there is a Explanation.—For the purposes of this section, the expression “to any other person in whom director is interested” means— (c) any private company of which any such director is a director or member;
it is confused me...
thanks in advanced...
My company gave a loan according to limit prescribed by section 372A of companies act, 1956 but according to section 185 of new act which it prohibit to give the the loan in which directors are interested than if any company give the loan to private company is prohibited but if loan has given to limited company in which the director have below 25 % holding than it is violation of the section 185 or not..
please suggest because in the act there is a Explanation.—For the purposes of this section, the expression “to any other person in whom director is interested” means— (c) any private company of which any such director is a director or member;
it is confused me...
thanks in advanced...
29 November 2013
Dear Satish,
I still can not comment on section 185 and 186 because the MCA has not given us a complete details on it, so unable to give any comments on it.
I still can not comment on section 185 and 186 because the MCA has not given us a complete details on it, so unable to give any comments on it.
30 November 2013
IF ANY HAVE SOME VIEW THAN HEARTLIY WELCOME:
03 August 2024
Let's clarify the provisions of Section 185 of the Companies Act, 2013, and how they apply to loans involving companies with common directors:
### **1. Provisions Under Section 185 of the Companies Act, 2013**
**Section 185 (Loans to Directors):**
- **General Prohibition:** Section 185 of the Companies Act, 2013 generally prohibits a company from giving any loan, guarantee, or security to its directors, or to any other person in whom the director is interested, except in certain specified circumstances.
- **Exceptions for Private Companies:**
- **Loans to Directors of Private Companies:** The restrictions of Section 185 do not apply to private companies in the same manner as they do to public companies. Specifically, private companies can provide loans to their directors, subject to compliance with Section 186 and other conditions specified under the Act.
- **Definition of "Person in Whom Director is Interested":**
- The term "person in whom director is interested" includes:
- Any private company in which the director is a director or a member.
- Any public company in which the director holds not less than 25% of the total voting power.
### **2. Application to Loan Transactions**
**1. Loan to Another Limited Company with Common Directors:**
- **Loan from One Limited Company to Another Limited Company (with Common Directors):**
- **Section 185 Applicability:** Section 185 applies to loans made by a company to its directors or to entities where directors are interested. If both companies have common directors, Section 185 would typically apply.
- **If the director holds less than 25% in the borrowing company:** Even if the director holds less than 25% of the voting power in the borrowing company, the prohibition under Section 185 would still apply. The restriction is not solely based on the percentage of holding but also includes any private company where the director is a director or a member.
**2. Loan to a Private Company with Common Directors:**
- **Private Company Giving Loan to Another Private Company (with Common Directors):**
- **If the Borrower is a Private Company:** For private companies, Section 185's restrictions on loans are less stringent compared to public companies. However, compliance with Section 186 (which deals with loans and investments) is required. If both companies are private, and the director is a director or member in the borrowing company, compliance with the specifics of Section 186 is essential.
### **3. Loans under Old and New Provisions**
- **Loans under Section 372A of the Companies Act, 1956:**
- Section 372A dealt with inter-corporate loans and investments and had different limits and restrictions compared to Section 185 of the Companies Act, 2013.
- **Transition to New Act:**
- The Companies Act, 2013 supersedes the Companies Act, 1956. Loans that were permissible under the old Act might need to be revisited to ensure compliance with the new Act’s provisions, particularly with the stricter rules under Section 185 and Section 186.
### **4. Summary**
1. **Can a Private Company Give a Loan to a Limited Company with Common Directors?**
- **Yes**, but it must comply with Section 186 of the Companies Act, 2013. Section 185 restricts loans directly involving directors but does not explicitly prohibit loans between companies with common directors, provided other provisions are followed.
2. **Can a Limited Company Give a Loan to Another Limited Company with Common Directors?**
- **Yes**, but the transaction must comply with the conditions of Section 186, and consideration must be given to the restrictions of Section 185.
3. **Loans Under the New Act:**
- Ensure that the loan transactions comply with Section 186, which deals with loans and investments by companies. Even if Section 185 might seem less restrictive for private companies, ensuring adherence to Section 186 is crucial.
For accurate and specific advice tailored to your situation, consulting with a corporate lawyer or a company secretary is recommended.
### **1. Provisions Under Section 185 of the Companies Act, 2013**
**Section 185 (Loans to Directors):**
- **General Prohibition:** Section 185 of the Companies Act, 2013 generally prohibits a company from giving any loan, guarantee, or security to its directors, or to any other person in whom the director is interested, except in certain specified circumstances.
- **Exceptions for Private Companies:**
- **Loans to Directors of Private Companies:** The restrictions of Section 185 do not apply to private companies in the same manner as they do to public companies. Specifically, private companies can provide loans to their directors, subject to compliance with Section 186 and other conditions specified under the Act.
- **Definition of "Person in Whom Director is Interested":**
- The term "person in whom director is interested" includes:
- Any private company in which the director is a director or a member.
- Any public company in which the director holds not less than 25% of the total voting power.
### **2. Application to Loan Transactions**
**1. Loan to Another Limited Company with Common Directors:**
- **Loan from One Limited Company to Another Limited Company (with Common Directors):**
- **Section 185 Applicability:** Section 185 applies to loans made by a company to its directors or to entities where directors are interested. If both companies have common directors, Section 185 would typically apply.
- **If the director holds less than 25% in the borrowing company:** Even if the director holds less than 25% of the voting power in the borrowing company, the prohibition under Section 185 would still apply. The restriction is not solely based on the percentage of holding but also includes any private company where the director is a director or a member.
**2. Loan to a Private Company with Common Directors:**
- **Private Company Giving Loan to Another Private Company (with Common Directors):**
- **If the Borrower is a Private Company:** For private companies, Section 185's restrictions on loans are less stringent compared to public companies. However, compliance with Section 186 (which deals with loans and investments) is required. If both companies are private, and the director is a director or member in the borrowing company, compliance with the specifics of Section 186 is essential.
### **3. Loans under Old and New Provisions**
- **Loans under Section 372A of the Companies Act, 1956:**
- Section 372A dealt with inter-corporate loans and investments and had different limits and restrictions compared to Section 185 of the Companies Act, 2013.
- **Transition to New Act:**
- The Companies Act, 2013 supersedes the Companies Act, 1956. Loans that were permissible under the old Act might need to be revisited to ensure compliance with the new Act’s provisions, particularly with the stricter rules under Section 185 and Section 186.
### **4. Summary**
1. **Can a Private Company Give a Loan to a Limited Company with Common Directors?**
- **Yes**, but it must comply with Section 186 of the Companies Act, 2013. Section 185 restricts loans directly involving directors but does not explicitly prohibit loans between companies with common directors, provided other provisions are followed.
2. **Can a Limited Company Give a Loan to Another Limited Company with Common Directors?**
- **Yes**, but the transaction must comply with the conditions of Section 186, and consideration must be given to the restrictions of Section 185.
3. **Loans Under the New Act:**
- Ensure that the loan transactions comply with Section 186, which deals with loans and investments by companies. Even if Section 185 might seem less restrictive for private companies, ensuring adherence to Section 186 is crucial.
For accurate and specific advice tailored to your situation, consulting with a corporate lawyer or a company secretary is recommended.
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