Company Cannot Give Loan To Director Without Special Resolution In General Meeting : Supreme Court

The Supreme Court yesterday (April 2) cancelled the bail of businessman Satinder Singh Bhasin for violating the bail conditions imposed by it. One of the conditions imposed was that Bhasin must deposit Rs. 50 crores to the Supreme Court Registry. However, it came to light that he has siphoned off the funds of his company, Bhasin Infotech and Infrastructure Private Limited (BIIPL), in order to fulfil this condition.

A bench comprising Justice Sanjay Karol and Justice NK Singh noted that Bhasin was required to comply with this condition in his individual capacity. It also said that this was not a case where he had taken a loan from his Company as a Director.

"Upon a consideration of the above submissions and the breakup as filed by the petitioner himself, it cannot be disputed that the amount of Rs. 50 crores has originated from the funds of BIIPL and other related entities. We are inclined to agree with the submissions advanced by the respondents. The condition requiring deposit as a prerequisite for grant of bail, was imposed upon the petitioner in his individual capacity. This condition required bonafide, if not strict, compliance.

It stated that in order to take a loan from the Company, Section 185 of the Companies Act, 2013, requires that a special resolution be passed to sanction the required loan. In the absence of any special resolution, Bhasin had actually misappropriated the funds of BIIPL, the Court observed.

"On a plain reading of the above Section[185 of the Company Act], it is evident that a company cannot directly or indirectly give a loan to its director without passing a special resolution in a general meeting or unless the funds correlate to the principal business activities of the company. In the present case, it cannot be said that the loan to secure bail for the petitioner was connected to the company's principal business activities by any stretch of imagination. Therefore, the deposit of the amount through the purported loan taken by the petitioner from BIIPL, in the absence of any documentary approval or compliance with statutory requirements of Section 185 of the Companies Act, 2013, cannot be sustained."

It further noted that Bhasin did not invest a single rupee from his personal fund for the deposit but had actually availed an interest-free commercial benefit from BIIPL, which does not make any sense for the Company.

"The absence of even basic safeguards, such as pledging of shares or provision of security is representative of how these transactions lack any bonafide/lawful financial structure."

The Court ordered that the money be forfeited and 5 crore would go to NALSA and the rest would be used in the insolvency proceedings which is ongoing against petitioner's company.