SECTION-185

LOAN, GUARANTEE OR PROVIDING SECURITY TO

DIRECTORS, ETC.
 OBJECTIVE OF SECTION 185

To Prevent the directors from using their undue influence in

obtaining Loan From their Own Company either for themselves or
for their relatives or partners.
APPLICABILITY OF SECTION 185

This Section Shall be Applicable to ALL COMPANIES

Except:- Certain Private Companies Only which fulfil
3 Conditions.
 SECTION-185(1)

A Company Shall Not Directly or Indirectly Give Any Loan including

loan by way of book debt , Guarantee or Provide Security to -

Its Relative
Relative Any
Any Firm
Firm inin
Its
Director of
of Such
Such which
which Such
Such
Director
ss Director
Director director
director or
or
Relative
Relative is
is aa
Partner
Partner ofof Such
Such partner
partner
Directors
Directors of
of Director
Director ifif such
such
its
its HOLDING
HOLDING director
director is
is aa partner
partner
Company
Company in
in any
any firm
firm

Book
Book Debt
Debt -- Benefit
Benefit which
which is
is not
not in
in cash
cash form
form (Exp-
(Exp- goods
goods sold
sold on
on Credit
Credit to
to Director)
Director)
 SECTION-185(2)

A Company May Advance Any Loan including loan by way of

book debt , Give Guarantee or Provide Any Security in
connection with any loan taken by a person in Whom Any
Director of the Company is Interested-

If 2 Conditions Are Satisfied

A
A Special
Special Resolution
Resolution Such
Such Loan
Loan shall
shall be
be utilised
utilised for
for
shall
shall be
be Passed
Passed in
in GM
GM its
its Principal
Principal Business
Business Activity
Activity by
by
Borrowing
Borrowing Company
Company
 Explanation of Section-185(2)

A Person in Whom Any Director of the Company is

Interested Means-

A
A Private
Private Any
Any Body
Body Corporate
Corporate inin If
If Any
Any Body
Body Corporate,
Corporate, its
its
Company
Company in in which
which ““ not
not less
less than
than MD
MD oror Manager,
Manager, Directors
Directors
which
which Such
Such 25%
25% Voting
Voting Power”
Power” held
held Accustomed
Accustomed toto act
act
Director
Director is
is aa by
by Director
Director alone
alone or
or with
with with
with /by
/by the
the directions
directions of
of
Director
Director OR
OR others
others Directors
Directors of
of the
the Directors
Directors of
of Lending
Lending
Member
Member Lending
Lending Company
Company Company
Company
 Exemptions of Section-185
1. Provisions of Section 185 Shall not Apply on “Private
Companies “ which Satisfied all these 3 Conditions-

No
No Body
Body Borrowing
Borrowing from
from Bank,
Bank, No
No Default
Default in
in repayment
repayment
Corporate
Corporate shall
shall Financial
Financial Institution
Institution or
or of
of Existing
Existing Borrowing
Borrowing
be
be Body
Body Corporate
Corporate should
should be
be subsisting
subsisting at
at the
the time
time of
of
Shareholder
Shareholder less
less than
than making
making transaction.
transaction.

22 Times
Times of
of its
its OR 50
50 Crore
Crore
Paid up Share
Paid up Share
Capital
Capital
(Which Ever is Less)
 Exemptions of Section-185
Provisions of Section 185 Shall not Apply on Following-

Any
Any Company
Company Any
Any Company
Company maymay Give
Give A
A Holding
Holding Company
Company Can
Can
Engaged
Engaged in
in Loan
Loan to
to its
its Managing
Managing give
give
Money
Money Director
Director or
or Whole
Whole Time
Time Loan/Guarantee/Security
Loan/Guarantee/Security
Lending
Lending Director
Director if-
if- to
to its
its Wholly
Wholly Owned
Owned
Business
Business
Subsidiary
Subsidiary Company
Company
Minimum
Minimum
Interest
Interest Rate
Rate Such
Such Loan
Loan A
A Holding
Holding Company
Company
By
By Passing
Passing
Should
Should be
be Facility
Facility should
should OR Can
Can give
give Guarantee
Guarantee and
and
Special
Special
equal
equal to
to be
be extended
extended to
to all
all provide
provide Security
Security to
to its
its
Resolution
Resolution
Government
Government Employees
Employees Subsidiary
Subsidiary Company
Company
Security
Security yield
yield
 Contravention of Section-185
If any Loan/Guarantee/Security provided in contravention
of this section then penalty of such default shall be follow-

Every
Every Office
Office in
in Default
Default of
of Company
Company
Company
Company shall
shall be
be OR
OR any
any person
person to
to whom
whom such
such
punishable
punishable with
with fine
fine loan/guarantee/security
loan/guarantee/security given
given shall
shall
be
be punishable
punishable with
with

Imprisonment
Imprisonment Fine
Minimum- Fine
Minimum- 5Lac
5Lac which
which may
may OR/with Minimum-
Maximum- Minimum- 5 5 lac
lac
Maximum- 25
25 lac
lac extend
extend to
to 6
6 Maximum-
Maximum- 2525 Lac
Lac
months
months