Home › Companies Act, 2013 › Chapter XII › Section 185

Companies Act, 2013 · Chapter XII · Meetings of Board and its powers

Section 185 of the Companies Act, 2013 Loans to directors, etc.

In force Explainer reviewed 22 October 2026

Who it applies to

• Every public company
• A private company, unless it meets all three conditions of the private-company exemption (see below)
• Directors of the lender and of its holding company, and their relatives

What the section says

• Section 185(1) bars any loan (including a loan shown as a book debt), guarantee or security, direct or indirect, in connection with a loan to: a director of the company or of its holding company; a partner or relative of such a director; or a firm in which such a director or relative is a partner.
• Section 185(2) is the exception for 'any person in whom a director is interested'. The company may lend, guarantee or secure only if a special resolution is passed in general meeting AND the borrower uses the money for its principal business activities.
• The notice of that general meeting must carry an explanatory statement giving full particulars of the loan, guarantee or security, what the recipient will use it for, and any other relevant fact.
• 'A person in whom a director is interested' means: a private company in which the director is a director or member; a body corporate where the director (or directors together) can control at least 25% of the voting power at a general meeting; or a body corporate whose board, managing director or manager is accustomed to act on the instructions of the lending company's board or directors.
• Section 185(3) takes four cases outside the section: a loan to a managing or whole-time director as part of service conditions given to all employees or under a scheme approved by members by special resolution; a company whose ordinary business is lending or giving guarantees, if it charges interest at not less than the prevailing yield on the 1, 3, 5 or 10-year Government security closest to the loan tenor; a holding company's loan to, or guarantee or security for a loan to, its wholly owned subsidiary; and a holding company's guarantee or security for a bank or financial institution loan to its subsidiary. The last two must be used by the subsidiary for its principal business activities.
• Private-company exemption: under MCA notification G.S.R. 464(E) dated 5 June 2015, as amended by G.S.R. 583(E) dated 13 June 2017, section 185 does not apply to a private company (a) in whose share capital no other body corporate has invested, (b) whose borrowings from banks, financial institutions or bodies corporate are less than twice its paid-up share capital or ₹50 crore, whichever is lower, and (c) which has not defaulted in repaying such borrowings when the loan is made. All three conditions must be met.

Penalty for breach

Section 185(4), as substituted by the Companies (Amendment) Act, 2017 w.e.f. 7 May 2018.

Our guide on this

• Can a director or company take a loan? Sections 185 and 186 explained

Common questions

Can a company give a loan to its director?

Generally no. Section 185(1) prohibits it. The exceptions are in section 185(3), for example a loan to a managing or whole-time director under service conditions that apply to all employees, or under a scheme approved by the members by special resolution.

Can a company lend to another company or firm in which its director is interested?

Only under section 185(2): the members must pass a special resolution at a general meeting, the notice must carry the explanatory statement with full particulars, and the borrower must use the money for its principal business activities.

Does section 185 apply to a loan to a wholly owned subsidiary?

Section 185(3)(c) takes a holding company's loan to its wholly owned subsidiary (and a guarantee or security it gives for such a loan) outside the section, provided the subsidiary uses the money for its principal business activities.

Is a private company exempt from section 185?

Only if it meets all three conditions in MCA notification G.S.R. 464(E) of 5 June 2015 (as amended on 13 June 2017): no body corporate has invested in its share capital, its borrowings from banks, financial institutions or bodies corporate are below twice its paid-up capital or ₹50 crore (whichever is lower), and it has no default in repaying those borrowings. Otherwise the section applies in full.

Section number, heading and status: Companies Act, 2013 as consolidated on India Code (amendments to about 2020–21). Sources for this page: Companies Act, 2013, section 185: India Code consolidated text. Reviewed 22 October 2026. General information, not legal advice; confirm on the official sources before relying on a provision.