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Now even private companies cannot give loans to directors?

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)

13 September 2013

Dear friends,

Section 295 of Companies Act 1956 relating to loans to directors etc. did not apply to private companies. Now corresponding Section 185 of Companies Act 2013 which has become effective from 12.9.2013 does not provide for such exemption to private companies.

Even in case of public companies such transactions could be entered into at the most with the approval of the Central Govt. However, it seems Section 185 of new Act puts total ban on such transactions, excepting loans to MD/WTD as part of conditions of service extended to all employees or pursuant to scheme approved by members by special resolution.

Members may please deliberate on this important issue.

Thanks

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6 Replies

Sneha (Company Secretary) (1594 Points)
Replied 16 September 2013

Yes, I agree with your view. At least private companies should have been given exemption as before. Further what about the private companies which have already given loan to its directors in accordance with the Companies Act, 1956 before applicability of this section ??

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P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 17 September 2013

Existing loans given by private companies as per Companies Act 1956 will not be affected by the new provision. Only new loans will be governed by the new provisions.

sivadas chettoor (CA) (2644 Points)
Replied 04 October 2013

The new Act has not come into force except section 1.

Anurag Sharma (Service) (65 Points)
Replied 25 October 2013

Section 185 relating to loan to directors has been notified w.e.f. 12-09-2013 and as such no company cannot give any loan to directors or other entities in which director/s is/are interested. According to it no loan is now possible between holding/subsidiary/group companies.

Himanshoo B (Top Executive) (27 Points)
Replied 25 October 2013

The new section 185 of Companies Act 2013 has been specifically introduced for the said purpose which makes it now not possible for loan even to subsidiary forget Director, not sure whether it is a drafting error or intentional. The subsequent section 186 defines the limit for eligible Companies but private ltd Companies are now not eligible where as earlier the exemption from intercompany loan section 295 was only for private companies.