As per Section 185 of the Companies Act 2013 which is effective from 12thSeptember 2013, the following points are to be noted in relation to loan and/or guarantee and/or security to be provided:

 

1)         A private or public company can’t grant loan or can extend guarantee or provide security (in relation to any loan) to its directors, or director of holding companies or relative of directors.

 

2)         A private company can’t provide loan or extend guarantee to another private company if there is a common director or common directors in both the companies.

 

3)         A private company (lender/guarantor company) can not provide loan or extend guarantee to another private company (borrower company) if the lender/guarantor company’s director or directors are shareholders of the borrower company.

 

4)         A private company can’t provide loan or extend guarantee to any firm in which any director of such private company or his relative is a partner.

 

5)         A private company can’t provide loan or extend guarantee to any partner of the partnership firm in which any director of such private company is a partner.

 

6)         A private company (lender/guarantor company) can’t provide loan or extend guarantee to any private company in which the director of such lender/guarantor company is a shareholder.

 

7)         A private company can’t grant loan or extend guarantee to a public companyif any one or more director whether alone or together holdes 25% shares.

 

8)         A public company can’t grant loan or extend guarantee to any company (private or public) if any director along or alongwith other directors’ are holding 25% shares or more in that company (borrowing company)

 

9)         A public company can grant loan or extend guarantee to any public companyprovide that the directors (one or more) of guarantor company are not holding 25% or more voting shares in the borrowing company.

 

10)       Any company (private or public) can’t provide any loan or extend guarantee to 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/guarantor company.

 

11)       A public company may provide loan or extend guarantee to another public company even if there are common directors provided that conditions of point 8 and 9 above are complied with.

 

12)       Any company (private or public) can provide loan or extend guarantee to its a managing or whole-time directoras a part of the conditions of serviceextended by the company to all its employees or pursuant to any scheme approved by the members by a special resolution

 

13)       Any company (private or public) can provide loan or extend guarantee or provide security if it is in the ordinary course of its business at an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.

 

 

A person shall be deemed to be the relative of another, if he or she is related to another in the following manner, namely:-

 

(i)                   If they are members of a Hindu Undivided Family;

(ii)                 they are husband and wife; or

(iii)               Father: Provided that the term “Father” includes step-father.

(iv)               Mother: Provided that the term “Mother” includes the step-mother.

(v)                 Son: Provided that the term “Son” includes the step-son.

(vi)               Son’s wife.

(vii)             Daughter.

(viii)           Daughter’s husband.

(ix)               Brother: Provided that the term “Brother” includes the step-brother;

(x)                 Sister: Provided that the term “Sister” includes the step-sister.