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

Section 186 of the Companies Act, 2013 regulates the loans and investments made by a company. Here are the key points and requirements you must adhere to:

• Definition of Interest: Under Section 186(2), a director is considered to have an interest in a company if they are a director of that company or hold shares in that company. This includes loans to entities in which a director has a significant interest.
• Approval Requirements:
  • The loan must be approved by a resolution passed at a Board meeting if it exceeds the prescribed limit.
  • If the loan amount exceeds the limit of the company's own free reserves and securities premium, a special resolution must be passed by the shareholders.
• Limitations on Loans:
  • The total amount of loans and investments made by the company should not exceed 60% of its paid-up share capital, free reserves, and securities premium account, or 100% of its free reserves and securities premium account, whichever is higher (as per Section 186(2)).
• Disclosure of Interest:
  • According to Section 184 of the Companies Act, 2013, the interested director must disclose their interest in the other company at the Board meeting where the loan is being discussed.
• Documentary Compliance:
  • Ensure to maintain proper documentation of the Board resolution and any shareholder approvals, as well as the disclosure made by the director regarding their interest.

In conclusion, while your company can provide a loan to another company in which a director has an interest, it is crucial to follow the procedural requirements and limitations set forth in Section 186 of the Companies Act, 2013 to avoid any regulatory issues.