Term loans and advances as defined in Banking Regulation Act can be used interchangeably. The act defined “secured loan or advance” means a loan or advance made on the security of assets the market value of which is not at any time less than the amount of such loan or advance; and defined “unsecured loan or advance” as a loan or advance not so secured; It means, when a person including a company obtains any loan or any advance from bank that will stand on equal footing.

Compliance under companies Act on obtaining loan or advance from bank: Whenever a company takes any loan or advance from bank which creates any interest or lien of the company’s property or asset or undertaking or both as security or as mortgage needs to file e-form CHG-1 for intimating Registrar of companies about creation of charge on the asset or property or undertaking of the company.

Analysing term loan and advance with respect to Section 185 and 186 of companies Act, 2013

Section 185: Loan to directors

Section 185 (1) provides that, save as otherwise provided in the Companies Act, 2013, 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 any loan taken by him or such other person.

As section 185 applies on both direct and indirect loan, but the meaning of indirect loan will connote that the company shall not give a loan to a director through the agency of one or more intermediaries. The Word “indirectly” in the section cannot be read as converting what is not a loan into a loan.

Section 186: Loan and Investment by Company

Section 186 (2) provides that, No company shall directly or indirectly —
(a) give any loan to any person or other body corporate;

(b) give any guarantee or provide security in connection with a loan to any other body corporate or person; and
(c) acquire by way of subscription, purchase or otherwise, the securities of any other body corporate,

exceeding sixty per cent. of its paid-up share capital, free reserves and securities premium account or one hundred per cent. of its free reserves and securities premium account, whichever is more.

What is “Loan” and “advance” ?

The term Loan and advance has not been defined under Companies Act, 2013. Therefore, we have to take help of the dictionary meaning and judicial clarifications in this regard.

Dictionary Meanings

Loan is defined as a thing that is borrowed, especially a sum of money that is expected to be paid back with interest.

Advance is defined as to pay (money) to (someone) before it is due. Another meaning, advance means a loan, an advance from the bank, as per this definition also advance and loan can be used interchangeably if taken by bank.

Judicial Pronouncement/Meanings

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