Loans which can be offered

Similar to the old company law, the new company law also prohibits a company from giving any kind of loans to directors or to the following people-

(a) Any director of the Company or it’s helping company or a partner or relative of any director of the lending company

(b) Any firm or business in which any of the director or a relative of the director is a member

(c) Any private limited company of which the director of the lending company is a Director/partner

(d) any corporate company at the meeting of which 25% of more of the voting power is in the hand of the director or in the hand of two directors together.

(e) any corporate firm whose managing director is obliged to work on the instructions of the board or on the instructions of the directors of the lending company.

However, this restriction does not apply to:-

(a) the giving of any loan to a managing or whole-time director:

(i) as a part  of the conditions of service extended by the company to all its employees; or                                                  (ii) pursuant to any scheme approved by the members by a special resolution; or

(b) a company which in the ordinary course of its business provides loans or gives guarantees or securities for
the due repayment of any loan and in respect of such loans and interest is charged at a rate not less than the
bank rate declared by the Reserve Bank of India.

However, the following are main differences between the provisions under New Company Law vis-à-vis the provisions of the Old Company Law:-

(a) the restriction also applies to private companies, unlike the old company law

(b) Under the Old Company Law, a company could provide such loan, guarantee or security with the
approval of the central government. However, this is not possible under the New Company Law.

(c) the new company law prohibits providing loans to its subsidiary company or even any kind of security cannot be provided to the subsidiary company.