Grants of Loans to Directors of the Company under Section 185 of the Companies Act, 2013 (Part -1)

The Companies Act, 2013 (“Act”) regulates the provisions relating to grants of loans to directors of the company. Section 185 of the Act provides the conditions and restrictions of granting loans to the directors. Every company must follow the conditions laid down in this Section before granting loans or giving guarantee or security in connection with any loan. This Section also provides a penalty to the company, officer in default and the directors who grant loans in contravention to the conditions laid down in this Section.

Loan To Directors
Section 185(1) of the Act states that a company cannot –

1. Advance loan directly or indirectly,
2. Advance loan which includes a loan represented by a book debt,
3. Give guarantee or provide security with connection to any loan taken by a director, director of its holding company, partner or relative of any director, or any firm in which a director is a relative or a partner.

Thus, this Section prohibits granting loans to the directors or relatives or partners of the directors of the company.
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