Loans and/or advances made by the companies to their employees are not governed by section 186 of the Companies Act, 2013

Gen­er­al Cir­cu­lar No. 04/2015

Sub­ject : Clar­i­fi­ca­tion with regard to sec­tion 185 and 186 of the Com­pa­nies Act, 2013 — loans and advances to employ­ees reg.

This Min­istry has received a num­ber of ref­er­ences seek­ing clar­i­fi­ca­tion on the applic­a­bil­i­ty of pro­vi­sions of sec­tion 186 of the Com­pa­nies Act, 2013 relat­ing to grant of loans and advances by Com­pa­nies to their employees.

2.    The issue has been exam­ined and it is here­by clar­i­fied that loans and/or advances made by the com­pa­nies to their employ­ees, oth­er than the man­ag­ing or whole time direc­tors (which is gov­erned by sec­tion 185) are not gov­erned by the require­ments of sec­tion 186 of the Com­pa­nies Act,2013.  This clar­i­fi­ca­tion will, how­ev­er, be applic­a­ble if such loans/advances to employ­ees are in accor­dance with  the con­di­tions of ser­vice applic­a­ble to employ­ees and are also in accor­dance with the remu­ner­a­tion pol­i­cy, in cas­es where such pol­i­cy is required to be formulated.

3.   This issues with the approval of the Secretary.