IN SATINDER SINGH BHASIN V. GOVERNMENT OF NCT OF DELHI & ORS. (2026 INSC 310), THE SUPREME COURT REAFFIRMED THAT SECTION 185 OF THE COMPANIES ACT 2013 (LOAN TO DIRECTORS) IS NON-NEGOTIABLE.
LOANS TO DIRECTORS — KEY COMPLIANCE POINTS
Section 185 is mandatory: Loans, guarantees or securities to directors or
entities in which they have a personal interest must comply with Section 185.
SPECIAL RESOLUTION IS ESSENTIAL:
A Board Resolution alone is not
sufficient where a special resolution is required.
PRIOR APPROVAL:
The Special Resolution must be passed before disbursement, and the notice
should clearly specify the purpose/utilisation of the loan.
PRIVATE COMPANY EXEMPTION IS CONDITIONAL:
The MCA exemption applies only when all three conditions are satisfied
simultaneously:
· No body corporate has invested in the company’s share
capital.
· Borrowings from banks/body corporates are within the
prescribed limit.
· The company has no subsisting default in repayment of
such borrowings.
ONE FAILURE = EXEMPTION LOST:
If even one of these conditions is
not met, the company must comply with the applicable Section 185 requirements.
PENALTIES CAN BE SUBSTANTIAL:
· Company: ₹5 lakh–₹25 lakh.
· Officer in default: Imprisonment up to 6 months or
fine of ₹5 lakh–₹25 lakh, or both, as applicable.
RECIPIENT:
Imprisonment up to 6 months or fine of ₹5 lakh–₹25 lakh, or both, as
applicable.
REPAYMENT DOES NOT AUTOMATICALLY CURE THE VIOLATION:
Subsequent repayment or an
inadvertent breach does not necessarily eliminate the statutory consequence.
COMPOUNDING IS POSSIBLE:
The offence may be compoundable, but compounding should not be confused
with compliance.
KEY TAKEAWAYS
No informal director funding. No “temporary advance” workaround. No
reliance on a Board Resolution where a Special Resolution is required.
Review every director-related financial arrangement against Section 185
before the next transaction.
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