Provisions Applicable For Granting Loan to Director of A Company

Section 185 of the companies Act 2013 govern the procedure for advancing loan to the director of a company whether whole time or managing director. Companies Act 2013 stipulates that no company shall advance any loan either directly or indirectly to any of its directors including any loan represented by a book debt and this provision also apply to any other person in whom the director is interested and director has given any guarantee or have provide any security in relation with any loan taken by him or by such other person.

Provided that the above provision shall no apply in two situation which are as follows:-

(A) Where loan has been given to a managing or whole-time director for the below purposes

• As part of payment for the conditions of service extended by the company to all its employees or
• In Accordance with any arrangement approved by the members of the company by a special resolution or

(B)  Company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan, including any loan represented by a book debt including in respect of such Loan to directors or any other person and on which an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.

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