LOAN TO DIRECTORS, ETC. (SECTION 185):

LOAN TO DIRECTORS, ETC. (SECTION 185):

No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person.

This provision shall not apply to –

1.      the giving of any loan to a managing director or a whole  – time director –

A.    as  a part of service conditions extended by the company to all its employees; or

B.     pursuant to any scheme approved by the members by a special resolution;

2.      a company which in the ordinary course of its business provide loans or give guarantees or securities for the repayment of any loan and in respect of such loan an interest is charged at a rate not less the bank rate declared by the Reserve Bank of India.

The expression “to any other person in whom director is interested” means—

(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;

(b) any firm in which any such director or relative is a partner;

(c) any private company of which any such director is a director or member;

(d) any body corporate at a general meeting of which not less than twenty – five per cent of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or

(e) 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 company.

If any loan is advanced or a guarantee or security is given or provided in contravention, the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.