Loan to Director and Connected Entity Checker — Section 185
Reviewed by Finin2min Editorial Desk · Last reviewed 11 August 2026
Classify a proposed loan, guarantee or security as prohibited, conditionally permitted or potentially exempt under section 185.
Screen section 185
Private-company, Government-company and Nidhi exemptions require separate notification conditions.
Classification
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Approval path
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How This Is Calculated
Section 185 categorizes loans to directors and connected persons into generally prohibited (director, holding company director, relatives of partners, firms in which they're a partner), conditional (allowed with a special resolution and specified safeguards, for categories like companies in which the director has interest), and exempt (subsidiaries, MD/WTD loans as part of service conditions, ordinary business-course loans by lending companies).
Frequently Asked Questions
Can a company ever lend money to its own director?
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Generally not directly to the director themselves or specified closely connected categories — this is a basic prohibition that a special resolution alone cannot cure. Some categories (like loans to a managing/whole-time director as part of service conditions, or loans by companies in the lending business) are separately exempt.
What is the difference between "prohibited" and "conditional" categories under Section 185?
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Prohibited categories cannot be cured even with shareholder approval. Conditional categories can proceed with a special resolution and compliance with specified safeguards (like using the loan only for the company's principal business activities) — the distinction matters significantly for what's actually achievable.
Scope: Checks the permissibility of a loan/guarantee/security to a director or connected entity under Section 185 of the Companies Act, 2013, applying the specific exemptions and conditions.
Calculation logic
General rule: a company cannot, directly or indirectly, advance a loan (including loan represented by a book debt), give a guarantee, or provide security in connection with a loan to any director, or to any other person in whom the director is interested (as defined — includes firms in which the director/relative is a partner, private companies where the director is a director/member, and specified other connected entities/bodies corporate).
Check the specific exemptions: loans to a managing/whole-time director as part of the conditions of service extended to all employees, or per a scheme approved by special resolution; a company that in the ordinary course of business provides loans/guarantees/security at an interest rate not less than the currently prescribed benchmark rate; loans/guarantees/security to a wholly owned subsidiary or, with specific conditions, to any subsidiary company for its principal business activities.
Where the transaction fits a listed exemption, flag the additional conditions attached to that specific exemption (e.g., interest-rate floor, use restricted to principal business activities, board/special-resolution approval requirements) that must also be met.
Inputs and assumptions
Exemption categories and their specific conditions follow the current Section 185 provisions as amended — this provision has been significantly relaxed by amendment from its original, near-blanket-prohibition form to the current, more nuanced exemption structure.
'Person in whom a director is interested' is a specifically defined, broad category under the section — the checker applies the current statutory definition rather than a general common-sense notion of 'connected person'.
Exclusions and edge cases
Contravention carries penal consequences for the company, the director, and the person to whom the loan/guarantee/security was extended — this checker addresses permissibility/exemption analysis, not penalty exposure for a past contravening transaction.
This checker is scoped to loans/guarantees/security specifically covered by Section 185 — general inter-corporate loans/investments (not to a director or director-connected entity) are instead governed by the separate Section 186 limits, addressed by the Inter-Corporate Loan and Investment Limit Calculator.