Section 185 of CA 2013 : Section 185: Loan To Directors, Etc

Explanation using Example

Let's say there's a company called "XYZ Pvt Ltd" where Mr. A is a director. Mr. A is planning to start a new business and needs a loan for the same. He approaches XYZ Pvt Ltd for a loan.

Under Section 185 of The Companies Act, 2013, XYZ Pvt Ltd cannot directly provide a loan to Mr. A, as he is a director. Additionally, the company cannot give any guarantee or provide security for a loan that Mr. A might take from a bank.

However, if XYZ Pvt Ltd wants to support Mr. A's venture, they can still do so by following certain conditions:

• The company must pass a special resolution in a general meeting, and the details of the loan or guarantee must be fully disclosed to the shareholders.
• The loan must be used by Mr. A for the principal business activities of his new venture.

If XYZ Pvt Ltd ignores these provisions and provides the loan to Mr. A without following the due process, the company, Mr. A, and the officers in default could face hefty fines and even imprisonment as per the penalties outlined in the act.