My company in Jodhpur 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 Jodhpur 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.

Under Section 186 of the Companies Act, 2013, the following conditions and requirements must be satisfied:

• Approval of the Board: The loan must be approved by the Board of Directors of the lending company. This must be documented in the minutes of the meeting.
• Shareholder Approval: If the loan amount exceeds the limits specified in the Act, prior approval of the shareholders must be obtained through a special resolution. The thresholds are as follows:
  • For loans exceeding one time the paid-up share capital, free reserves, and securities premium.
  • For loans exceeding the higher limit of the prescribed percentage of the company's net worth.
• Disclosure of Interest: The director who has an interest in the borrowing company must disclose their interest at the meeting in which the loan is discussed. This is in line with Section 184 of the Companies Act, which mandates that a director must disclose their interest in any contract or arrangement.
• Loan Terms: The terms of the loan must be fair and reasonable, and the company must ensure that the interest rate charged is in line with prevailing market rates to avoid any allegations of preferential treatment or breach of fiduciary duty.
• Filing Requirements: The company is required to file necessary returns with the Registrar of Companies (RoC) as per Section 185 and Section 186, detailing the particulars of the loans given.

Additionally, it is important to ensure compliance with the provisions of other relevant sections, such as Section 185, which prohibits certain loans to directors and related parties, to avoid contravention of the law. Non-compliance can lead to penalties for both the company and the directors involved.

In conclusion, while it is permissible to grant loans to another company where a director has an interest, adherence to the aforementioned legal requisites is crucial to ensure compliance with the Companies Act, 2013.