Section 185 and 186 of the companies Act,2013 related to loans to employees

According to?Section 185of the Companies Act, 2013 read with the?Companies (Amendment) Act,2017, Effective from 7th May 2018, a company shall not provide any loan, guarantee, or security-related to any loan taken by—

1. any director of the?company, or
2. any director ofa company which is its?holding company?or
3. any partner or relative of any such director mentioned above or
4. any?firm?in which any such director or relative is a partner

However, a company can give any loan, guarantee, or security-related to any loan taken to any person in whom any director of the company is interested, only after complying with the two conditions mentioned below:

• Passed a?special resolution?in a general meeting of the company, and
• The loans so taken must beutilized?by the borrowing company for its?principal business activities.

Allthe provisions mentioned above shall not apply to:

• giving of any loan to a managing or whole-time director—

1. as a part of the conditions of service extended by the company to all its employees, or
2. as per any scheme approved by passing a special resolution

According toSection 186?of the Companies Act,2013, A company shall not —

1. provide any loan to?ANY PERSONor other?body corporate
2. provide any guarantee or security related to a loan to any other body corporate or

person and

1. acquire the securities of any other body corporate throughpurchase, subscription, or otherwise

exceeds 60%?of its paid-up share capital, free reserves, and securities premium account(PSC+FR+SPA)?or?100%?of its free reserves and securities premium account(FR+SPA), whichever is higher.

Clarification?on the word“ANY PERSON”, as per the Companies (Amendment)Act,2017- Effective from 7th May 2018,the word “person”?does not include any individual who is in the employment of the company.

CONCLUSION:-Dear stakeholders afterreadingall above the provisions we can saythe company may giveloans and advance to its employees by complying with?SECTION 185and other incidental matters theretonot?section 186of the companies act,2013.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise.?AKGVG & Associates?does not intend to advertise its services through this.

Posted by:

CS Neetu Saini

AKGVG & Associates