Directors of the Company are considered as its trustees. Directors are the trustees of the company’s money and property, and also act as agents in the transaction which they enter into on behalf of the company. The Companies Act, 2013, through its provisions, plays a very important role in keeping position of director intact as a trustee and prohibits directors from stepping out of shoes of Agent and trustee of the Company.
This comparative article explains provisions of Companies Act, 2013 governing grant of loan to its director by a company as well as accepting loan from its directors.
| Loan to Director | Loan from Director | |
| Whether permitted under Companies Act, 2013 | Not permitted | Permitted |
| Governing section | Section 185 | Section 179(2)(d) and 180 |
| Meaning of provision | Section 185 |
A company shall not Advance loan or give guarantee or security in respect of loan taken by:
It is may be noted that a company in no circumstance can advance loan (or give guarantee/security) to its (and holding company’s) individual director or his relative or to the firm in which any such director or his relative is a partner.
(a) any private company of which any such director is a director or member;
(b) any body corporate at a general meeting of which not less than twenty-five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
(c) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.
Conditions
1. Pass Special Resolution in the general meeting.
2. Explanatory statement to the notice of the General Meeting shall disclose the following
Condition:
Conditions:
1. If the loan/guarantee/security is extended pursuant to a scheme approved by the members by a special resolution or
2. Loan/guarantee/security given as a part of the conditions of service extended by the company to all its employees.
Condition:
Condition:
Condition:
Loan should be used for principal business activities.
Conditions:
1. The Director of the company or relative of the private company should give a declaration stating the fact that the amount is not being given out of funds borrowed by him.
2. The company shall disclose the details of money so accepted in the Board’s Report.
Disclaimer: Although reasonable care is been taken in drawing the above comparison, nothing mentioned above shall be considered as legal opinion of the author. The author is Associate member of Institute of Company Secretaries of India (ICSI). In case any further assistance is needed, the author can be contacted at [email protected] or +919702908418.
