Granting of interest free loan to the Managing or Whole Time Director by a listed company

As per the provisions of Section 185 of Companies Act, a loan can be granted to the Managing Director ("MD") or Whole Time Director ("WTD") as a part of the conditions of service extended by the Company to all its employees or pursuant to a scheme approved by the members vide special resolution.

Key features of the scheme:

1. Scheme could be generic scheme covering all the existing and future MDs and WTDs or scheme could be specific, covering only a particular MD or WTD.
2. Content of the scheme could be purpose, amount, interest rate, timeline of disbursement, repayment terms of the loan etc.

Following approval are required for granting interest free loan to MD or WTD:

1. Nomination and Remuneration Committee
2. Audit Committee (Only Independent Directors are allowed to vote)
3. Board of Directors
4. Shareholders (via special resolution)

Disclosures required:

1. Disclosure in the notes of the Balance Sheet of the Company.
2. Filing of e-form MGT-14 within 30 days from the approval of the Board of Directors and shareholders.
3. Disclosure to the stock exchange of related party transactions. (such disclosures shall be made in every 6 months on the date of publication of standalone and consolidated financial results).
4. Intimation under Regulation 30 of SEBI (LODR) Regulations, 2015 may be required in few cases.

Tax implications:

1. The difference between the interest charged by the SBI and the interest paid by the employee should be considered as a perquisite taxable in the hands of the MD or WTD.
2. Further, Company needs to withhold the taxes on the perquisite amount.

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