My company in Delhi 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 Delhi can give a loan to another company in which a director has an interest, but it must comply with the provisions of Section 186 of the Companies Act, 2013.

Section 186 of the Companies Act, 2013 regulates the giving of loans and guarantees by companies. Here are the key points and requirements to consider:

• Approval Requirement: Any loan or guarantee to a company in which a director has an interest requires prior approval from the Board of Directors. If the loan amount exceeds specified limits, shareholder approval may also be necessary.
• Limit on Loans: A company cannot give loans exceeding 60% of its paid-up share capital, free reserves, and securities premium account, or 100% of its free reserves, whichever is higher.
• Disclosure of Interest: The director interested in the transaction must disclose their interest to the Board of Directors. This should be recorded in the minutes of the meeting.
• Related Party Transactions: If the loan is considered a related party transaction, it may also be subject to the provisions of Section 188 of the Companies Act, 2013, which requires approval from the shareholders in certain cases.
• Compliance with the Rules: The company must comply with the Companies (Meeting of Board and its Powers) Rules, 2014, which detail the procedures for convening and conducting board meetings.
• Loan Terms: The terms of the loan should be documented clearly, including the interest rate, repayment terms, and any collateral involved, to ensure transparency and compliance with legal standards.

In summary, while it is permissible for your company to give a loan to another company where a director has an interest, it must adhere to the stipulations outlined in Section 186 of the Companies Act, 2013. This includes obtaining necessary approvals, ensuring proper disclosures, and complying with limits and procedures specified under the law to avoid any legal repercussions.