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Can a pvt. Company be a co-borrower for director loan

KAILASH (CA) (58 Points)

18 June 2021

Can a pvt. Ltd company be a part of director loan as co-borrower.

Case1 - director is taking home loan , being is income is not sufficient for such loan , his fully owned pvt. Ltd comapny is coming as co borrower to loan. Is same is violation of section 185 ??

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2 Replies

CA. Sourav Sarkar (Chartered Accountant ) (24583 Points)
Replied 18 June 2021

I think it is a violation of companies act

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Shubham Jha (127 Points)
Replied 02 July 2021

Directors income is not sufficient for such loan and that is why pvt company is helping out its director by becoming a part of the contract isn't it ??? its a type of gurantee that if director will not discharge its liability the company will do it , isn't it ? both of the parties taking loan will be liable for the default if any done by director. such a contract will attract the provision of sec 185 and thus according any direct or indirect loan and gurantee is not allowed to its directors.

Company can give loan in the following cases:

Loan can be given to managing/whole time director of the company if

it is approved by a special resolution in the meeting passed AND

If this is a facility given by company to all its employees as well.