By S&S Co. Advocates & Solicitors · Published 25 September 2026 · Informational content, not legal advice: see our disclaimer
Two Different Provisions, Often Confused
Sections 185 and 186 of the Companies Act, 2013 both regulate a company's outward flow of money, but they address different situations and should not be treated interchangeably. Section 185 restricts loans, guarantees or security in connection with a loan to a company's own directors and certain persons connected with them. Section 186 separately governs a company's loans, guarantees, security and investments made to or in other bodies corporate generally, including group companies, without requiring any director-connection.
Section 185: Loans Connected to Directors
Section 185, as amended, prohibits a company from directly or indirectly advancing a loan (including a loan represented by a book debt), or giving a guarantee or security in connection with a loan, to any director of the company or of a holding company, or to certain other specified persons connected with a director, subject to narrow, defined exceptions such as loans to a managing or whole-time director as part of a service condition extended to all employees, or in the ordinary course of business of a company that lends money at rates not below the prevailing government security yield. A contravention exposes both the company and every officer in default to penalty, and the director concerned can be required to repay the loan or make good the guaranteed amount.
Section 186: Broader Inter-Corporate Loans and Investments
Section 186 caps a company's aggregate inter-corporate loans, guarantees, security and investments at a prescribed percentage of paid-up capital, free reserves and securities premium (or a higher amount, if approved by special resolution), requires Board approval by way of a resolution passed at a duly convened meeting with all directors present at the meeting voting in favour where the amount exceeds prescribed limits, and mandates disclosure of the full particulars of the loan or investment in the company's financial statements. It also generally requires loans to be made at an interest rate not lower than the prevailing yield of specified government securities.
A company advancing funds to a group entity must independently check both provisions: Section 185 if any director-connection exists in the transaction, and Section 186 in any event, since the two frameworks operate side by side rather than one displacing the other.
Frequently Asked Questions
What is the core difference between Section 185 and Section 186?
Section 185 restricts loans, guarantees or security connected with loans to a company's own directors and specified connected persons. Section 186 separately regulates a company's inter-corporate loans, guarantees, security and investments made to or in other bodies corporate generally, without needing any director-connection.
Can a company lend money to its managing director?
Only within narrow exceptions recognised under Section 185, such as a loan extended as part of the conditions of service available to all employees, or in the ordinary course of business of a company whose principal business is lending money at rates not below the prevailing government security yield.
Is there a cap on inter-corporate loans and investments under Section 186?
Yes: Section 186 prescribes an aggregate cap tied to a percentage of paid-up capital, free reserves and securities premium, which can only be exceeded with prior shareholder approval by special resolution.
What happens if a company contravenes Section 185?
The company and every officer in default face monetary penalties, and the director who received the benefit can be required to repay the loan or make good the amount guaranteed or secured.
References & Further Reading
This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.
- Companies Act, 2013, Sections 185 and 186, as amended, and applicable rules.