My company in Nagpur 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 Nagpur 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 governs the lending of money by a company to another body corporate or person, and it sets specific conditions and limitations when such loans involve directors or companies in which directors have an interest. Here are the key points to consider:

• Approval Requirement: The company must obtain prior approval of the Board of Directors through a resolution. If the loan amount exceeds Rs. 1 crore, it must also be approved by the shareholders through a special resolution.
• Disclosure of Interest: The director who has an interest in the other company must disclose their concern or interest in the loan to the Board of Directors and abstain from participating in the discussion and voting on the resolution.
• Limits on Loan Amount: The aggregate of the loans made by the company to all its subsidiaries, other bodies corporate, and individuals cannot exceed the limits prescribed under Section 186. Typically, this is 60% of the company's paid-up share capital, free reserves, and securities premium account, or 100% of the company’s free reserves and securities premium account, whichever is higher.
• Terms and Conditions: The terms of the loan, including the rate of interest, repayment schedule, and security (if any), should be documented clearly and must be at arm's length, ensuring they are fair and reasonable.
• Prohibition of Certain Loans: The Act prohibits loans to directors or companies in which directors are interested under certain conditions, specifically if it is not in the ordinary course of business or if it involves companies that are in default of repayment of loans.

To summarize, while it is permissible for your company to extend a loan to another company where a director holds an interest, adherence to the provisions of Section 186 is crucial to ensure legality and compliance. It is advisable to consult a legal expert to navigate the specific requirements and documentation needed to execute such a loan properly.