Draft Special Resolution under section 185 Companies Act 2013

In accordance with section 185(2) of the Companies Act, 2013—

A company may advance any loan including any loan represented by a book debt, or give any guarantee or provide any security in connection with any loan taken by any person in whom any of the director of the company is interested, subject to the condition that--

(a) a special resolution is passed by the company in general meeting:

Provided that the explanatory statement to the notice for the relevant general meeting shall disclose the full particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security and any other relevant fact; and

(b) the loans are utilised by the borrowing company for its principal business activities.

Refer section 185 and relevant provisions thereto in order to have more clarity in this regard.

Format of special resolution under section 185 of the Companies Act, 2013 is given hereunder for reference—

SAMPLE #1

Special Business:

#. Approval of the loan by the Company to ...................... Limited in terms of the provisions of section 185 of the Companies Act, 2013:

To consider and if thought fit, to pass with or without modification(s) if any, the following resolution as a Special Resolution:

“RESOLVED THAT pursuant to the provisions of Section 185 and other applicable provisions, if any, of the Companies Act, 2013, including any statutory modifications or re-enactments thereof, for the time being in force, read with the relevant rules framed thereunder and subject to such approvals, consents, sanction and permissions as may be necessary, consent of the members of the company be and is hereby accorded to give loan to ....................... Limited (hereinafter referred as "borrowing company") to the extent of INR .............../- (Rupees ................................... only) to be utilized for the principal business activities of the borrowing company, a company in which the director(s) of the company is interested in.”

“FURTHER RESOLVED THAT for the purpose of giving effect to the foregoing resolution, the Board of Directors of the company (hereinafter referred to as the "Board", which term shall be deemed to include any committee thereof) be and is hereby authorized to negotiate, finalise and agree the terms and conditions of the aforesaid loan, and to take all necessary steps, to execute all such documents, deeds, instruments and writings and to do all such acts, deeds and things in order to comply with all the legal and procedural formalities and to do all such acts, deeds or things incidental or expedient thereto, as the Board may think fit and suitable.”

Explanatory Statement annexed to the notice pursuant to section 102 of the Companies Act, 2013:

ITEM NO. ...:

As per section 185 of the Companies Act, 2013, a company may advance any loan including any loan represented by a book debt, or give any guarantee or provide any security in connection with any loan taken by any person in whom any of the director of the company is interested, subject to the condition that: (a) a special resolution is passed by the company in general meeting and (b) the loans are utilised by the borrowing company for its principal business activities.

The loan amount to the extent of INR ...................../- (Rupees ............................... only), to be lent to ............................. Limited, will be used by the borrowing company for the purpose of its principal business activities only.

Therefore, the said Special Resolution is proposed for the approval of members under item no. ... of the Notice.

All the relevant documents considered at the meeting can be inspected at the office hours on working days at the Corporate office of the company.

(Name of the Director) and (Name of the Director), Directors of the company and their respective relatives are concerned or interested, financially or otherwise, in respect of passing of the Special Resolution set out at Item No. ...

None of the Directors, except the above mentioned Directors, of the company or their relatives are concerned or interested, financially or otherwise, in respect of passing of the Special Resolution set out at Item No. ...

The Board commends the passing of the Special Resolution set out at Item No. ... of accompanying notice.

SAMPLE #2

#. Approval pursuant to Section 185 of the Companies Act, 2013

To consider and if thought fit, to pass with or without modification(s) if any, the following resolution as a Special Resolution:

“RESOLVED THAT pursuant to the provisions of Section 185 of the Companies Act, 2013 (the 'Act') read with the Companies (Meetings of Board and its Powers) Rules, 2014 (the 'Rules') and all other  relevant/applicable rules, regulations, notifications and circulars issued, including any amendment(s) or re-enactment(s) thereof for the time being in force, subject to the provisions of the Memorandum and Articles of Association of the company, and in furtherance to the existing loans given, the consent of the Members of the company be and is hereby accorded for grant of loans or issue of Corporate Guarantee or providing Security for an amount not exceeding INR ......................... (Indian Rupees .................................... only), in aggregate to ........................... Limited and ......................... Limited, subsidiaries of the company on such terms and conditions as may be mutually agreed upon.

RESOLVED FURTHER THAT the Board of Directors and (Name), Company Secretary of the company be and is hereby severally authorised to negotiate, finalise and decide on the terms and conditions, from time to time, execute necessary agreements, papers and documents for the aforesaid grant of loans or issue of Corporate Guarantee or providing Security to the subsidiaries of the company and to do all such acts, deeds, things and matters and to give such directions as may be necessary or expedient in its absolute discretion as it deems fit and such decisions shall be final and binding on the company and to settle any question, difficulty that may arise in this regard and to delegate all or any of these powers to any Committee of Directors or any other Officer/Employee in this connection.”

SAMPLE #3

#. To Approve the Scheme of Loan for Managing Director and Whole-time Directors

To consider and if thought fit, to pass with or without modification(s), the following resolution as a Special Resolution:

“RESOLVED THAT pursuant to the provisions of Section 185 of the Companies Act, 2013 ("the Act") and other applicable provisions of the Act and rules made thereunder, as may be amended from time to time, consent of the members be and is hereby accorded to a Scheme of loan for its managing and whole-time directors as set out in the explanatory statement annexed to the notice convening this Annual General Meeting.”

“RESOLVED FURTHER THAT for the purpose of giving effect to this resolution, the Board of Directors ("the Board") be and is hereby authorized to finalize, sanction and disburse the loans to managing and whole-time directors, and to ratify such loans given earlier, if any, and also to delegate all or any of the above powers to any of the Directors of the company or any duly constituted committee of the Board and to do all acts, deeds and things that may be necessary or expedient for the purpose of giving effect to the foregoing resolution.”

Explanatory Statement pursuant to section 102(1) of the Companies Act, 2013

Item No. ...

In accordance with Section 185 of the Companies Act, 2013 ('the Act') with regard to the loan and guarantee to Directors, 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 loan taken by Director or such other person.

However, the following exemptions/relaxations have been given in this regard:- the giving of any loan to a managing or whole-time director— (i) as a part of the conditions of service extended by the company to all its employees; or (ii) pursuant to any scheme approved by the members by a special resolution.

In compliance with the provisions of the Act, your company introduces a policy of Loan Scheme for its managing director and whole-time director(s).

i) Purpose : Purchase/construction of flat/house.

ii) Amount of loan : Maximum ... times of monthly gross pay or the actual cost or the amount requested, whichever is less.

iii) Rate of Interest : Nil / ......% p.a.

iv) Recovery : In not more than ... monthly installments.

The sanction of loan will be at the sole discretion of the Management. The above mentioned policy is subject to review by the management from time to time. The Board of Directors recommend passing of the Special Resolution set out at Item No. ....

(Name of the Director), Director and his/her relatives are interested in the resolution set out at Item No. ...

None of the other Directors and / or Key Managerial Personnel of the company and their respective relatives are concerned or interested, financial or otherwise, in respect of the Special Resolution set out at Item No. ....

...................................................

NOTE: The resolution sample(s) here is only for reference, to help you with drafting. Do refer the exact provisions of the Act, relevant rules framed thereunder and any other applicable laws to be able to not to miss out anything important while drafting.