ECTION 185 OF COMPANIES ACT 2013- A SIMPLIFIED APPROACH

As per Section 185 of the Companies Act 2013 which is effective from 12th September 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 anotherprivate
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 (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.

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

7) 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)

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

9) 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.
10) 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.

11) 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 service extended by the company to all its employees or pursuant to any
scheme approved by the members by a special resolution

12) 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.

RELATIVE

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.
Section 186:- This section enlists the exceptions and specifies the limits up to which a company can
give loan.

The section 185 of CA, 2013, restrict the company on giving loans, guarantee or provide security to
Directors or any other person in whom Director is interested.

The ways via which a director can be interested has been covered via 5 inclusions:-

Point 1 & 2

The inclusion in point 1 and 2 covers the Director and his relatives too.

It Says

1) Any Director of Lending Company.

2) Any Relative of Director.

3) Director of a Company which is its holding company.

4) Any firm in which such director is partner or relative is a partner.

5) Any partner of such Director.

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