My company in Sambalpur 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 Sambalpur 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 regulates the giving of loans, making investments, and providing guarantees by companies. Here are the key points and steps to consider:

• Definition of Interest: Under Section 186(1), a director has an interest in a company if they are a director or a member of that company, or if they hold any position in that company.
• Board Approval: According to Section 186(2), the company must obtain prior approval from the Board of Directors before giving a loan to another company where a director has an interest. This approval must be recorded in the minutes of the Board meeting.
• Shareholder Approval: If the loan amount exceeds the limits prescribed under Section 186(3) (which is 60% of the paid-up share capital and free reserves or 100% of the securities premium account), the company must obtain approval from its shareholders through a special resolution.
• Disclosure of Interest: The director who has a financial interest in the loan must disclose their interest at the Board meeting. This is mandatory under Section 184 of the Companies Act, 2013.
• Terms and Conditions: The terms of the loan, including the interest rate and repayment schedule, must be determined in compliance with the company’s internal policies and should be fair and reasonable.
• Compliance with Other Regulations: Ensure compliance with any other relevant regulations, such as the Companies (Acceptance of Deposits) Rules, 2014, if applicable.
• Record Keeping: Maintain proper documentation of the loan agreement and board/shareholder resolutions for future reference and compliance checks.

In conclusion, while it is permissible for your company to provide a loan to another company in which a director has an interest, it is imperative to adhere to the procedures outlined in Section 186 of the Companies Act, 2013, to ensure compliance with the law and avoid potential legal issues.