My company in Jammu 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 Jammu 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 regulates the powers of a company to make investments, give loans, and provide guarantees. Below are the key considerations and requirements under this section:

• Definition of "Loan": For the purposes of Section 186, a loan includes any loan or advance made by a company to another person or company.
• Interest of Directors: If a director of your company is interested in the other company, this creates a potential conflict of interest that must be managed in accordance with the law.
• Approval Requirement: Loans to other companies (including those where directors have an interest) require:
  • Approval by the Board of Directors via a resolution.
  • In cases where the loan amount exceeds ₹1 crore, prior approval from the shareholders is necessary through a special resolution.
• Disclosure: The interested director must disclose their interest to the Board of Directors and refrain from participating in the discussion and voting on the resolution regarding the loan.
• Limits on Loans: The aggregate of loans and investments made by a company must 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.
• Conditions for Loans: Loans should be given for business purposes only, and the terms and conditions must be clearly defined to ensure compliance with the Companies Act.

Therefore, while it is permissible for your company to give a loan to another company where a director has an interest, it is critical to follow the procedural requirements and ensure full disclosure to avoid any legal repercussions under the Companies Act, 2013. Non-compliance could lead to penalties under Section 185 and Section 186 of the Act.

For further guidance, consider consulting with a legal expert specializing in corporate law to ensure all statutory requirements are adequately met.