My company in Saket 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 Saket 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 deals with the restrictions on loans and investments by a company. Here are the key points to consider:

• Definition of 'Loan': Under Section 186, a loan includes any advance made by the company to any other person or body corporate.
• Director's Interest: If a director has an interest in the borrowing company, it is essential to ensure full transparency and compliance with the law.
• Board Approval: The company must obtain prior approval from the Board of Directors for the loan. This approval should be recorded in the minutes of the meeting.
• Shareholder Approval: If the amount of the loan exceeds the limits prescribed by the Act (which is 60% of the paid-up share capital, free reserves, and securities premium), then a special resolution from the shareholders is necessary.
• Disclosure Requirements: The director concerned must declare their interest in the other company at the Board meeting, and this declaration must be noted in the minutes.
• Limits on Loan Amount: Ensure that the loan amount does not exceed the prescribed limits mentioned in Section 186(2) and Section 186(3).
• Documentation: Maintain proper documentation, including loan agreements and the rationale for the loan, to ensure compliance and for future reference.

Furthermore, it is crucial to refer to the following sections of the Companies Act, 2013:

• Section 185: This section prohibits a company from advancing loans to its directors or to any other person in whom the director is interested, with certain exceptions.
• Section 186(7): This section outlines the consequences of contravening the provisions of Section 186, which includes penalties for the company and its officers.

In summary, while it is permissible for your company to give a loan to another company in which a director has an interest, strict adherence to the provisions of the Companies Act, 2013 is mandatory to avoid any legal repercussions.