Loans To Directors: An Analysis Under The Companies Law

Chanchal Srivastava, University of Petroleum and Energy Studies

ABSTRACT

Under the companies act of 2013, loans granted to directors is one of those provisions which, although, under the law has been provided as a restrictive measure in the concerned provision of section 185, yet, the provision itself provides for certain exceptions which makes the facility available, subject to certain conditions. Since the directors of a company hold the power to run the business in their preferred direction, such a restriction is provided to prevent the misuse of any company funds and the arbitrary abuse of the power. The provision can be seen to loosen its restrictions as it proceeds. The stringentness of the law does not follow up to obstruct the ordinary running of a business, so there are reasonable relaxations that are also provided as exceptions under the conditions of provision which altogether acts as a system of check so that the relaxation provided is not exploited to their self- interest. The provision can be seen to have missed out on mentioning some of the aspects under the prohibition or the exception. With the enforcement of section 185, the intention of the legislation can be seen to provide a security shield to the rights of the shareholders and protect the company’s best interest at the same time. This article aims at shedding some light on the provision of loan to directors.

Keywords: Loan, directors, Subsidiary, Partially-owned.