My company in Bilaspur wants to give a loan to another company in which a director has interest; is this permissible under Section 186 of the Companies Act?

Detailed Legal Analysis

Yes, your company in Bilaspur can give a loan to another company in which a director has an interest, but it is subject to certain conditions outlined in Section 186 of the Companies Act, 2013.

Section 186 of the Companies Act, 2013 governs the power of companies to make loans, investments, and guarantees. Here are the key points and requirements for your situation:

• Definition of 'Director's Interest': A director's interest means any financial interest in the other company, directly or indirectly, which must be disclosed to the board.
• Approval Requirements:
  • The loan must be approved by the board of directors of your company.
  • If the amount of loan exceeds the limit specified (which is generally 60% of the company's paid-up capital, free reserves, and securities premium account), prior approval from the shareholders through a special resolution may be required.
• Disclosure of Interest:
  • The director must disclose their interest in the other company at a board meeting (Section 184 of the Companies Act).
  • Such disclosure must be noted in the minutes of the meeting.
• Loan Amount Limitations:
  • The total amount of loan to any person or entity should not exceed 60% of the paid-up share capital and free reserves or 100% of the security premium account of your company, whichever is higher.
  • If the loan exceeds these limits, it must be approved by a special resolution.
• Conditions for Loan:
  • The loan must be for a legitimate business purpose.
  • The terms of the loan, including interest rates, should be in line with market conditions to avoid any potential conflict of interest.

In conclusion, while it is permissible to give a loan to another company in which a director has an interest, compliance with the above provisions of the Companies Act, 2013 is crucial to ensure legality and avoid any repercussions. Consulting with a legal expert is advisable to navigate the specific circumstances and ensure adherence to all applicable regulations.