Clarification with regard to section 185 and 186 of the Companies Act 2013 - loans and advances to employees

The Ministry of Corporate Affairs has issued a general circular no 04/ 2015 dated 10th March,  2015 to provide clarification with respect to advancing loans to employees would attract Section 185 or 186 or not.

This Ministry has received a number of references seeking clarification on the applicability of provisions of section 186 of the Companies Act, 2013 relating to grant of loans and advances by Companies to their employees.

The issue has been examined and it is hereby clarified that loans and/or advances made by the companies to thelr employees, other than 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. This clarification will, however, be applicable if such loans/advances to employees are in accordance with the conditions of service applicable to employees and are also in accordance with the remuneration policy, in cases where such policy is required to be formulated,