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Loans and advances by company to employees clarified

19 March, 2015

The Ministry of Corporate Affairs has clarified that loans or advances made by the companies to their employees, other than to 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. Earlier, the provisions of Section 186 were applicable to loans to ‘any person’ or other body corporate. There was nothing explicitly mentioned in the said section regarding the meaning of the term ‘any person’. Thus, it was construed that any person included employees as well.

Further, General Circular No. 4/2015, dated 10-3-2015, issued for this purpose also states that this will be applicable only if such loans/advances to employees are in accordance with the conditions of service applicable to employees, or the remuneration policy, in case where such policy is required to be formulated.
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