Loans to directors under section 185 for private limited company

SECTION 185 IS EXEMPTED FOR PRIVATE LIMITED COMPANY ON FULFILLMENT OF THE FOLLOWING CONDITIONS:

• In whose share capital no other body corporate has invested any money;
• If the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid-up share capital or Rs. 50 Crore whichever is lower; and
• Such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this section.

THIS SECTION SHALL NOT APPLY IN CASE THE COMPANY GIVES LOAN TO MANAGING OR WHOLETIME DIRECTOR, PROVIDED:

• The loan is given as a part of conditions of service by the company to all its employees;
• Pursuant to any scheme approved by the members by a special resolution.
• A company which in its ordinary course of business provides loans or gives guarantees or provides securities for repayment of any loan and interest on such loans are charged at a normal rate, not less than the bank rate as declared by the Reserve Bank of India.
• A holding company can provide a loan to its wholly owned subsidiary, or give a guarantee or provide any security in respect of a loan made to its wholly owned subsidiary if it was given for the purpose of carrying principal business activities.
• A holding company can give a guarantee or provide security in respect of a loan made by any bank or financial institution to its subsidiary company if it was given for the purpose of carrying principal business activities.

PENALTY FOR CONTRAVENING WITH SECTION 185 OF THE ACT:

The company shall be punishable with fine which shall not be less than Rs. 5 lakh but which may extend to Rs. 25 lakh and the defaulting director or the other person to whom the loan is given or guarantee or security is provided shall be punishable with imprisonment which may extend to 6 months or with a fine not less than Rs. 5 lakh but which may extend to Rs. 25 lakh or both. Note: If you have any query or question please comment in the comment box below or contact us. We would love to help you.