My company in Dindigul wants to give a loan to another company in which a director has interest; is this permissible under Section 186 of the Companies Act?
RO Asked by Rohit Deshmukh from India
Quick Answer
Section 186 of the Companies Act, 2013 permits a company to give loans, provide guarantees, or acquire securities of another company, subject to limits and conditions.
Detailed Legal Analysis
Section 186 of the Companies Act, 2013 permits a company to give loans, provide guarantees, or acquire securities of another company, subject to limits and conditions. If the loan is to a company in which a director has interest, prior approval by a special resolution is required, and the interest of the director must be disclosed.
The aggregate of loans, guarantees, and investments cannot exceed twenty percent of paid-up share capital, free reserves, and securities premium, or sixty percent of paid-up share capital and free reserves, whichever is higher. The loan must be utilised for the purpose declared, and no loan can be made at a rate below the prevailing bank rate.
The Madras High Court may examine violations of this section. Compliance with Tamil Nadu Rent Control Act 1960 on money lending and usury restrictions is also necessary.
Breach of Section 186 attracts penalties including fines on the company and officers in default.
Legal Provisions Referenced
Verify the current statutory text at India Code (the official repository of Indian legislation) or the Legislative Department. This answer is general legal information, not advice on your specific matter.
Disclaimer: AI-generated for educational purposes only. Does not constitute legal advice. Consult a qualified practitioner.