Rajesh Gawda is a director of XYZ Pvt. Ltd. having a paid up share capital of ₹11 crore. The company has granted a loan of ₹2 crore to Rajesh Gawda. The company has a borrowing of ₹15 crore from HDFC Bank. The company se

According to section 185(1) of the Companies Act, 2013, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by, - any director of company, or of a company which is its holding company or any partner or relative of any such director; or any firm in which any such director or relative is a partner. Further, vide Exemption Notification dated 05th June, 2015, Section 185 of Companies Act, 2013 shall not apply to Private Company meeting the following conditions: In whose share capital no other body corporate has invested any money; If the borrowings of such company from banks or financial institutions or anybody corporate is less than twice of its paid up share capital or fifty Crore rupees, whichever is lower; and Such a company has not defaulted in repayment of such borrowings subsisting at the time of making transactions under this section. Now, considering that the Paid up Capital of the Company is ₹11 Crores and borrowing from HDFC Bank is ₹15 Crore, it can be seen that the amount of borrowings by the company from Banks (₹15 Crores) is less than twice the amount of paid up capital (i.e. 2 X ₹11 Cr = ₹22 Crores). So as per exemptions conditions available to private company borrowing from the bank is less than 2 times of Paid up Capital of the Company. To avail exemption, the company need to fulfill all conditions as provided in the Exemption Notification. Hence, if all the above conditions are fulfilled, the loan to Rajesh Gowda is exempted under section 185 and the company is not in violations of the provisions of the Companies Act, 2013 and the claim of CS is not justified.