HIJ Engineers Ltd. has a paid-up capital of ₹ 20 lakh, Free Reserves of ₹ 3 lakh and Securities Premium of ₹ 2 lakh. It has granted a loan of ₹ 14 lakh to KLM Traders Ltd. The Board of Directors is proposing the followin

Section 186 (2) of the Companies Act, 2013 provides that, no company shall directly or indirectly give any loan to any person or other body corporate exceeding 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account, whichever is more. Further, Section 186(3) of the Companies Act, 2013 provides that where the aggregate of the loans and investment so far made, along with the investment or loan, proposed to be made or given by the Board, exceed the limits specified under section 186(2), no investment or loan shall be made unless previously authorised by a special resolution passed in a general meeting. Hence, as per section 186(2) of the Companies Act, 2013, the limits for the loan and investment will be the amount whichever is more of the following: 60% of paid up share capital, free reserves and securities premium account = (₹20 lakh + ₹3 lakh + ₹2 lakh) * 60% = ₹15 lakh or 100% of free reserves and securities premium account = (₹3 lakh + ₹2 lakh) * 100% = ₹5 lakh In the instant case, since the company has already given loans of ₹14 lakh to KLM Traders Ltd and further proposed to grant loan of ₹2 Lakh to KLM Cement Ltd, it will exceed the limit of ₹15 lakh, hence prior approval by special resolution in the general meeting will be required to be passed by HIJ. Engineers Ltd. in terms of Section 186(3) of the Companies Act, 2013. As per Explanation w.r.t. to Section 186(2) of the Companies Act, 2013, the word person, used under this sub-section does not include any individual who is in the employment of the company. Accordingly, there are no limit imposed on the right of a company to sanction a loan to an employee of the company under Section 186(2) of the Companies Act, 2013, the Board of directors can grant a loan of ₹3 lakhs to the employee. It does not require any approval from the members.