A public company secured residential accommodation for the use of its Managing Director by entering into a leave and licence arrangement with the landlord. As per the terms of the agreement, the company deposited a sum o

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 any of its directors, or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person. In the present case, housing accommodation is provided to the managing director. The company has not given any advance or loan to the Managing Director. The amount deposited with the landlord in respect of housing accommodation cannot be said to be an indirect loan to the Managing Director as the contract has been entered into by the company with the landlord. The company has paid the security advance on account of a bonafide business transaction towards the fulfillment of condition of contract entered by the company with the landlord. The company can at any time have the house vacated by the Managing Director and Company may accommodate any other person in the said house or company can use it for any other purpose at its own discretion. Hence, this transaction does not amount to loan by the company to the Managing Director. [Refer case law Dr. Fredie Ardeshir Mehta V. Union of India [1991] 70 Comp. Cas. 210 (Bom.)]