To clear the ambiguity in the current provisions in order to strengthen the administration and code of conduct and to meet the necessities of Corporate India, the Government has come up with various new policies and amended the existing ones. The amendment to section 185 of the companies act is discussed below:-
LOAN TO DIRECTORS – Section 185:
Companies can now provide loan, guarantee or security to any person in whom the Director is interested. This is subject to prior approval by a special resolution. For the purposes of this section, the expression “to any other person in whom director is interested” means—
(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
(e) 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.
If Companies provide loans, guarantees or security in their normal course of business, are allowed to extend such loans if they do so at specified interest rates i.e. rate of prevailing yield of a Government security with the closest tenure to that of the loan.