A company cannot lend money to its own director unless it follows the strict requirements of Section 185 of the Companies Act, 2013, including approval by a special resolution. The Supreme Court reinforced this in Satinder Singh Bhasin v. Government of NCT of Delhi & Ors. (2026 INSC 310), holding that any deviation from Section 185 renders the transaction legally unsustainable, in a case involving a Rs. 50 crore company-funded deposit made by a director as a bail condition.
What did the Supreme Court's 2026 ruling actually involve?
The petitioner, a company director, needed to deposit Rs. 50 crore as a condition of his bail. The funds came from Bhasin Infotech and Infrastructure Private Limited (BIIPL), the company he directed. The Court found that no board resolution had been passed before the funds were disbursed, and held this was not bona fide personal compliance with the bail order, but a case of company funds being used for the director's personal benefit without lawful corporate approval.
What does Section 185 actually require?
A company cannot directly or indirectly advance a loan to its director unless the statutory conditions are satisfied, centrally, approval by a special resolution of the shareholders, along with the other requirements set out in Section 185 and its rules. This is a materially higher bar than an ordinary board resolution, which is not sufficient on its own for the categories of loans the section restricts.
Why does the law require this higher approval standard?
Directors control the day-to-day decisions of a company, including, absent this safeguard, decisions about lending the company's own money to themselves. Section 185 exists to prevent that conflict of interest from being resolved unilaterally at the board level, requiring shareholders, the company's actual owners, to specifically authorise it.
What happens if a company skips the special resolution?
The transaction becomes legally unsustainable and can be challenged. Beyond the transaction's own validity, using company funds for a director's personal benefit without lawful approval can expose both the company and the director to further consequences for misuse of company funds and breach of fiduciary duty, as the Supreme Court's characterisation in this case makes clear. This sits in contrast to the general direction of 2026 corporate-compliance reform, which has trended toward decriminalising minor defaults; see our piece on the Jan Vishwas Bill 2026 for that broader shift.
Does every payment to a director need a special resolution?
Not necessarily. Section 185 and its exemptions distinguish between different categories of financial assistance, and some limited, routine advances may fall outside its restrictions depending on the company's structure and the nature of the payment. Given how serious the consequences of getting this wrong can be, confirm the position with a company secretary or corporate advocate before disbursing funds, not after.
Disclaimer: This article is for general information only and is not legal advice. Consult a qualified advocate or company secretary before structuring any loan or advance to a director.
Frequently asked questions
Can a company give a loan to its own director?
Only if the statutory requirements under Section 185 of the Companies Act, 2013 are satisfied, including approval by special resolution of the shareholders. The Supreme Court has held that any deviation from this requirement renders the transaction legally unsustainable.
What did the Supreme Court decide in 2026?
In Satinder Singh Bhasin v. Government of NCT of Delhi & Ors. (2026 INSC 310), the Court examined a Rs. 50 crore deposit made by a company director as a bail condition, funded by his company. It found no board resolution had been passed before the funds were disbursed, and held this was not bona fide personal compliance but company funds misused for the director's personal benefit without lawful corporate approval.
What approval does Section 185 require before a company can lend to a director?
A special resolution passed by the shareholders, along with satisfying the other conditions set out in Section 185 and its rules, is mandatory. An ordinary board resolution alone is not sufficient for the categories of loans the section restricts.
What happens if a company advances a loan to a director without following Section 185?
The transaction is legally unsustainable and can be challenged. Beyond civil consequences, using company funds for a director's personal benefit without lawful approval can also expose the company and the director to consequences under other provisions dealing with misuse of company funds and breach of fiduciary duty.
Does this apply to routine business advances to a director, like a travel advance?
Section 185 and its exemptions distinguish between different categories of financial assistance to directors; some routine, limited advances may fall outside its restrictions depending on the specific facts and the company's structure. Whether a specific payment needs a special resolution should be confirmed with a company secretary or corporate advocate before the funds are disbursed, not after.