You want your own company to advance you money. Section 185 says almost never

Most founders have heard of Section 185 in the context of a director lending TO the company and know that's generally fine. The opposite direction gets far less attention precisely because it feels so ordinary: covering a director's travel cost and booking it as recoverable, advancing a month's salary early, fronting a relocation cost while the company reimburses over time. None of this is dressed up as a formal loan, which is exactly why it slips past Section 185's very broad definition of "loan," one that expressly includes a loan represented by a book debt, not just a cheque labelled as one.

Private companies do get an exemption from Section 185 entirely, but only if they clear every one of three conditions together: no other body corporate holds any of their share capital, their borrowings sit below a threshold, and they have no default in repaying those borrowings or in filing their own financial statements and annual returns. The condition that matters most here is the first one. An NRI-owned Indian subsidiary is, by definition, usually owned wholly or partly by a foreign holding company, and a holding company is itself "a body corporate." That reading, on its face, knocks the exemption out before the other two conditions are even worth checking. It's a reasonable, careful reading of the exemption's own wording applied to a foreign-parent structure, not a rule any regulator has spelled out in those exact words, which is exactly why it's worth confirming for your specific structure rather than assuming either way.

An informal advance already sitting on the books has three straightforward ways out, none of which need Section 185 relief because none of them look like a director loan in the first place: run it through payroll as taxed remuneration, treat future advances as a structured expense-reimbursement or per-diem policy instead of a running balance, or simply have the director repay the recoverable amount and close the ledger entry. Whichever route fits, the earlier it happens, the smaller and simpler the correction.

The common pattern this heads off: a director-level expense gets fronted by the company informally, treated as a recoverable advance, and nobody checks it against Section 185 because it doesn't look like a loan application. It surfaces at an audit or a funding round's diligence, and by then it's not just a technical breach. Section 185(4) carries a criminal fine for the company and personal fine-or-imprisonment exposure for both the officer who authorised it and the director who received it, one of the provisions the 2020 decriminalisation drive did not soften into a civil penalty. Where the director receiving the money is actually non-resident, there's a second layer worth flagging honestly: cross-border lending between a resident company and a non-resident individual has its own FEMA overlay, and this is specific enough to your facts that it needs a dedicated look rather than a general rule stated here.

A different scenario altogether shows up once a foreign VC-debt lender is involved: not the company advancing money to a director, but the Indian subsidiary guaranteeing a loan taken by its own foreign PARENT, something US-style venture-debt lenders routinely ask an Indian opco to sign. This isn't a bigger version of the loan question above, it's a different subsection of Section 185 entirely, one that permits this with conditions rather than banning it outright, and what decides whether it even applies is a specific number, not just the fact that the other company is "the parent."

The Explanation to Section 185(2) catches a body corporate as "a person in whom the director is interested" where that director personally exercises or controls 25% or more of ITS voting power. "Body corporate" expressly includes a foreign company, unlike "private company" (used earlier on this page), which only reaches an entity incorporated under Indian company law. So a foreign HoldCo is squarely capable of being caught, but only if a director who sits on the Indian subsidiary's board also personally holds or controls at least 25% of the parent's own voting stock, not merely because the parent happens to own the subsidiary. An early-stage founder who still holds a large personal stake in the parent is very likely caught; the same founder several funding rounds later, diluted well under 25%, may not be, on this specific clause at least.

Caught or not changes what happens next, but caught doesn't mean blocked. If the parent isn't an "interested person" under that test, Section 185 likely doesn't touch this guarantee at all, the section reaches directors and their close relations, not an unrelated body corporate. If it is caught, Section 185(2) is itself the compliant route, not a wall: the company CAN give the guarantee, provided a special resolution is passed at a general meeting, with the notice disclosing the guarantee's full particulars and purpose, and the parent actually uses the borrowed money for its own principal business activity rather than, say, parking it as investment capital. Section 185(3)(c)/(d)'s holding-to-subsidiary exemption is a different provision for the reverse direction and isn't needed here, since 185(2) already provides its own working route. The real risk isn't an unconditional ban, it's signing the guarantee without ever getting that special resolution passed, or without checking what the parent actually does with the money. This is our own reading of how the Explanation and Section 185(2) apply to this specific fact pattern, not a rule any court or the MCA has spelled out for exactly this scenario, so confirm your own personal voting stake in the parent, and get the resolution and disclosure right, before assuming either way.