With complete substitution of the section 185- Loan to Directors, etc., vide the Companies (Amendment) Act, 2017, it has made business easy and a little less troublesome. This is just a brief overview of what are the changes that have been brought about by the new amendment.

1. SECTION 185- LOAN TODIRECTORS,ETC.
AMENDMENTS VIDE THE COMPANIES (AMENDMENT)
ACT, 2017

2. INDEX
• Overview
• Stipulated Conditions for exemption of Private Companies
• Prohibitive vs. Restrictive
• Important takeaways from the Amendment
• Comparative Analysis
• Comparative Analysis- Status of Applicability of Section on
Certain Transactions
• Crux

3. OVERVIEW
To promote ease of doing business, the entire section has been substituted.
Earlier, private companies were exempted from the provisions of Section
185, subject to stipulated conditions*.
The intent of the current provisions of Section 185 is to ensure that directors
who hold a fiduciary position with respect to shareholders do not utilize the
funds of the company for their own benefit.
Where the shareholders of the company, being the ultimate owners,
themselves approve the utilization of the funds of the company in the
specified manner, the law need not create a bar on the same. Thus, the
provision has been amended to remove the prohibition to an extent and
provides for the passing of shareholders’ resolution for granting of
loans/guarantees/securities to entities in which directors are interested.

4. STIPULATED CONDITIONS
As per the exemption notification dated June 5, 2015 only those private
companies which fulfil the following conditions are exempted from the
provisions of section 185:
• in whose share capital no other body corporate has invested any
money;
• if the borrowings of such a company from banks or financial
institutions or any body corporate is less than twice of its paid up
share capital or Rs.50cr, whichever is lower; and
• such a company has no default in repayment of such borrowings
subsisting at the time of making transactions under this section.
Hence, private companies which do not fulfil the conditions prescribed
are subject to the prohibition as per the amended section 185, i.e., the
private companies, which do not fulfil the conditions for availing the
exemption, will be able to grant loan/guarantee/ security under the
restrictive purview.

5. PROHIBITIVE VS. RESTRICTIVE
The amended section is
Prohibitive to:
 Directors of the company; or
 Directors of a company which is its holding company; or
 Any partner of such director; or
 Relative of such director.
& Restrictive to:
 any private co. of which any such director is a director or member;
 any body corporate at a general meeting of which not less than 25% of the
total voting power may be exercised or controlled by any such director, or
by two or more such directors, together;
 any body corporate, the Board of Directors, MD or manager, whereof is
accustomed to act in accordance with the directions or instructions of the
Board of Director, or of any director or directors, of the lending company.

6. KEY TAKEAWAYS FROM THE AMENDMENT
 It allows the companies to grant loans / guarantees / securities to
entities in which directors are interested (in the restrictive
cases), subject to prior approval of the shareholders by special
resolution.
 Such loans / guarantees / securities can be granted on a condition
that they will be utilized by the borrower for its principal
business activities only.
 This is to ensure that there is no siphoning of funds received by
the companies.

7. COMPARATIVE ANALYSIS
AS PER THE OLD SECTION
OF THE ACT
Prohibition on giving loan / guarantee/ security
1) to the director of the Company.
2) to the director of the Holding Company.
3) to any partner or relative of any such director.
4) to any firm in which any director is relative or
partner
5) to any private company of which any such
director is a director or member
6) to any body corporate at a general meeting of
which not less than 25% of the total voting
power may be exercised or controlled by any
director, or by two or more such directors,
together.
7) to 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
AS PER THE AMENDMENT
ACT
1) Prohibition continues
2) Prohibition continues
3) Prohibition continues
4) Prohibition continues
5) Prohibition has been removed and such loan /
guarantee / security can be given by passing of a
special resolution at the shareholders’ meeting
6) Prohibition has been removed and such loan /
guarantee / security can be given by passing of a
special resolution at the shareholders’ meeting
7) Prohibition has been removed and such loan /
guarantee / security can be given by passing of a
special resolution at the shareholders’ meeting

8. COMPARATIVE ANALYSIS- STATUS OF
APPLICABILITY OF SECTION ON FOLLOWING
TRANSACTIONS
 Loan made by a holding company to its wholly owned subsidiary
company, to be utilised for its principal business activity only,
continues to be exempted from the purview of Section 185.
 Any guarantee / security by a holding company in respect of any
loan made to its wholly owned subsidiary for utilization for its
principal business activity continues to be exempted from the
purview of Section 185.
 Any other loan made by a holding company to its subsidiary
company is not exempted.
 Any Guarantee given or security provided by a holding company
in respect of loan made by any bank or financial institution to its
subsidiary company continues to be exempted.

9. CRUX
 Managing Director or whole-time Director are exempted from the
provisions of this section provided that providing loan by the
company is a facility provided by the Company to all its employees
or it is approved by the members of the Company by way of special
resolution.
 Holding company providing loan / guarantee / security to its wholly
owned subsidiary is exempted.
 Loans / guarantee / security given shall be utilised for the principal
business activity only.
 A Company which in the ordinary course of Business provides Loans
or give guarantees or provide security provided that the rate of
interest is charged at a rate not less than rate of prevailing yield of 1
year, 3 year, 5 year or 10 year government security closest to the
tenure of the Loan.