Section 185. Loan to directors, etc.
(1) Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to, or give any guarantee or provide any security in connection with any loan taken by—
(a) any director of company, or of a company which is its holding company or any partner or relative of any such director; or
(b) any firm in which any such director or relative is a partner.
(2) A company may advance a loan or give a guarantee or provide security in connection with a loan to any person in whom any of the directors of the company is interested, subject to the conditions prescribed and approval by special resolution, provided the loans are utilised by the borrowing company for its principal business activities.
(3) Nothing in sub-sections (1) and (2) shall apply to specified loans to a managing or whole-time director as part of conditions of service or under a scheme approved by special resolution, to companies in the ordinary course of business providing loans or guarantees at the prescribed interest rate, to loans by a holding company to its wholly owned subsidiary, or guarantees or securities by a holding company in respect of loans to its wholly owned subsidiary, where the prescribed conditions are met.
(4) If any loan is advanced or a guarantee or security is given or provided or utilised in contravention of this section, the company shall be punishable with fine of not less than five lakh rupees but which may extend to twenty-five lakh rupees; every officer in default shall be punishable with imprisonment up to six months or fine of not less than five lakh rupees but up to twenty-five lakh rupees; and the director or other person receiving the loan, guarantee or security shall be punishable with imprisonment up to six months or fine of not less than five lakh rupees but up to twenty-five lakh rupees, or with both.
