08 November 2007
CAN A DIRECTOR MAINTAIN A CURRENT ACCOUNT (IN DEBIT BALANCE OR CREDIT BALANCE) IN THE COMPANY WHERE HE IS A DIRECTOR BY PURRING CASH AND WITHDRAWING CASH OR PUTTING CHEQUE AND WITHDRAWING CHEQUE IN HIS CURRENT ACCOUNT
09 November 2007
cash transactions may violate section 269SS and section 269T of the Inocme Tax Act.......moreover provisions regarding loans to director in companies act will have to be complied
09 November 2007
LOAN TO DIRECTORS BY A PUBLIC LIMITED COMPANY* 140.1 Background note A company is permitted to make loans to its directors subject to certain restrictions and fulfilment of conditions. These restrictions are imposed in order to protect the interests of the shareholders. 140.2 Applicability The provisions given in this chapter are applicable to any loan given or guarantee provided or security given in connection with the loan made by any public company or a private company being its subsidiary to - u any director of the lending company or of a company which is its holding company or any partner or relative of any such director; u any firm in which such director or relative is a partner; u any private company of which such director is a director or member; u any body corporate at a general meeting of which not less than 25% of the total voting power may be exercised or controlled by any such director, or by two or more such directors together; u any body corporate the Board of Directors, Managing Director or Manager whereof is accustomed to act in accordance with the directions or instructions of the Board or of any director or directors of the lending company. *RELEVANT PROVISIONS : u Companies Act, 1956 : Sections 295, 296. u Companies (Central Government’s) General Rules and Forms, 1956. u Standard Listing Agreement. APPLICABILITY : PUBLIC LIMITED COMPANY. 140.2-1 Applicability to book debts The provisions given in this chapter are applicable to all transactions represented by a book debt which was from its inception in the nature of a loan or advance. 140.3 Non-applicability The provisions given in this chapter are not applicable to the following loans or guarantees or securities - u Loans made by a holding company to a subsidiary or guarantee given or security provided by a holding company in connection with a loan to its subsidiary; u Loans made or guarantee given or security provided by a private company which is not a subsidiary of a public company ; u Loans made or guarantee given or security provided by a banking company; u House building loan to Managing Director or whole-time director or any guarantee given by the company in connection with the house building loan. However, the terms and conditions of house building loan should be on the terms and conditions as are applicable to all its employees. 140.4 Board Resolution A Board Resolution (Annex 140.1) should be passed for submitting an application to the Central Government for sanctioning the loan to the director. 140.4-1 Approval by Central Government The approval of Central Government will be required in the following cases: u Loans as per para 140.2. u A house building loan to managing or whole time director by companies not having any such scheme to their officers/employees. u House building loan to managing or whole time director on the terms and conditions which are not in line with the scheme applicable to the company’s officers/employees. 140.5 Compliance with DCA/MCA Checklist The terms of loan should be in accordance with the DCA/MCA checklist (Annex 140.2) as given below: 140.5-1 Minimum rate of Interest The rate of interest proposed on the loan should not be less than the four per cent above the prevailing bank rate being the standard rate made public under section 49 of the RBI Act, 1934. 140.5-2 Maximum quantum of loan The quantum of loan along with other loans taken, if any, should not exceed 25 times of gross salary drawn in the preceding six months prior to making of the application. 140.5-3 Prohibition to pay guarantee commission No guarantee commission shall be allowed to be paid in respect of the aforesaid proposal. 140.6 Submission of eform 24AB to Central Government An application in eform 24AB (Annex 140.3) should be filed with the Ministry of Company Affairs, New Delhi enclosing a detailed application (Annex 140.4) and complying with the following guidelines: 140.6-1 Who can file? The eform 24AB shall be filed by the managing director or director or manager or secretary duly authorised by the Board . The signatory must hold a valid digital signature certificate. (Refer Chapter 360 for Digital Signature Certificates) 140.6-2 Time limit This form should be filed before making loan. 140.6-3 Pre-certification Pre-certification to be obtained from chartered accountant or cost accountant or company secretary (in whole time practice). 140.6-4 Attachments 1. Copy of board of directors resolution indicating— (i) The proposal of the company, terms and conditions (ii) Interest of directors or relatives, if any (iii) Rate of interest chargeable (iv) The schedule and terms of repayment (v) That the loan is not being made out of borrowed funds of the company (vi) Any other major or important condition having bearing on the loan or financial position of the company. 2. Copy of members’ resolution containing specific approval of required members along with explanatory statement. 3. A declaration that company has not defaulted in making repayments to the investors as and when they became due to them. 4. List of directors of board of both the companies and disclosing inter se interest if any. 5. Copy of draft loan agreement. 6. Declaration to the effect that funds proposed to be loaned are not required for its working capital requirements at least for a year. 7. Copy of loan scheme for the employees of the company, if any. 8. A no objection certificate (NOC) or prior approval of public financial institutions or banks in case any term loan is subsisting. 9. A declaration from the statutory auditor or a company secretary in whole-time practice that : (a) The company has not defaulted in: (i) The repayment of any fixed deposits or part thereof or interest thereon (ii) Payment of dividend (iii) Redemption or repayment of debenture and timely payment of interest thereon (iv) Redemption of preference shares, and (b) The company is regular in filing all forms or returns as required to be filed under the Companies Act,1956 (c) The proposal is in conformity within the provisions of section 372A of the Companies Act, 1956 (d) That the company is not in any default on account of undisputed dues of the Central Government , e.g. income-tax, central excise etc. 10. Copy of letter from bank or financial institutions wherein the company has been asked to furnish corporate guarantee or security for the loan sanctioned to the borrower company 11. Shareholding pattern of applicant and borrowing company 12. Optional attachment(s), if any 140.6-5 Digital Signature The eform should be digitally signed by the managing director or director or manager or secretary duly authorised by the Board. The signatory must hold a valid digital signature certificate. (Refer Chapter 360 for Digital Signature Certificates) 140.6-6 Application Filing Fee Application filing fee is to be paid in accordance with the Companies (Fees on Applications) Rules, 1999 (Appendix 15) as below: Authorised Share Capital Fee (Rs.) Less than Rs. 25 lakhs 500 Rs. 25 lakhs or more but less than Rs. 5 crores 1,000 Rs. 5 crores or more 2,000 140.6-7 Mode of Payment Refer Appendix 18. 140.6-8 Filing instruction Refer Chapter 358 for detailed instructions for filing e-forms. 140.7 Forwarding a copy of the application to the Registrar A copy of the application should be forwarded to the Registrar of Companies. 140.8 Board Resolution On receipt of the approval from the Central Government, a Board Resolution (Annex 140.5) should be passed for making the loan on the terms and conditions stipulated by the Central Government. 140.9 Making loan All formalities relating to the making of loan or guarantee or security like execution of documents, etc. should be completed. 140.10 Secretarial Compliance Certificate In case of companies with a paid-up capital of Rs.10 lakhs or more and up to Rs. 2 crores, the Secretarial Compliance Certificate obtained from the practising Company Secretary should affirm compliance with the provisions of section 295. ANNEX 140.1 (Refer Para 140.4) BOARD RESOLUTION FOR OBTAINING SANCTION OF CENTRAL GOVERNMENT FOR MAKING OF LOAN TO DIRECTOR RESOLVED that, subject to the approval of the Central Government, sanction be and is hereby accorded to the proposal of making of a loan of Rs. 50 lakhs to M/s. ABC Tools Private Limited in which Mr. ....... director of this company is a director as per terms and conditions contained in the draft loan agreement placed before this meeting and initialled by the Chairman for the purpose of identification. The loan will carry interest @ 10% p.a. and shall be repayable within 3 years. None of the directors or their relatives are interested in the transaction. RESOLVED FURTHER that Mr. X, Managing Director be and is hereby authorised to digitally sign the e-form 24AB, submit the application to the Ministry of Company Affairs and comply with all other formalities in this regard. ANNEX 140.2 (Refer Para 140.5) DCA’s CHECKLIST UNDER SECTION 295/372A Please ensure while submitting the application in respect of loans/corporate guarantee or furnishing security under sections 295 and 372A of the Companies Act, 1956 that the following information/documents have been furnished : 1. The application should be addressed to the Secretary, Department of Company Affairs, 5th Floor, ‘A’ Wing, Shastri Bhawan, Dr. Rajendra Prasad Road, New Delhi- 110001. 2. Application should be submitted along with the prescribed fee by demand draft drawn in favour of Pay and Accounts Officer, Department of Company Affairs, New Delhi in the manner provided by GSR No. 501(E), dated 6-7-1999 :— For application made by Companies Amount of fee to be paid in Rs. With authorised share capital : (a) Less than Rs. 25,00,000 500 (b) Rs. 25 lakhs or more but less than Rs. 5 crores 1000 (c) Rs. 5 crores or more 2000 3. The rate of interest proposed on the loan should not be less than the four per cent above the prevailing bank rate being the standard rate made public under section 49 of the RBI Act, 1934. 4. The quantum of loan along with other loans taken, if any, should not exceed 25 times of gross salary drawn in the preceding six months prior to making of the application. 5. No guarantee commission shall be allowed to be paid to any one in respect of the proposals. Application should be accompanied by the following documents 6. The proposal should be approved at the meeting of the board. A certified copy of resolution passed should be submitted indicating the proposal of the company, terms and conditions, interest of the directors/relatives, if any, clearly specifying (a) the rate of interest chargeable, (b) the schedule and terms of repayment, (c) the loan is not being made out of borrowed funds of the company, (d) any other major or important condition having bearing on the loan/financial position of the company. 7. Wherever required members’ specific approval be obtained for proposal. The resolution along with Explanatory Statement should contain all the relevant details as mentioned in point 6 above. A certified copy of the resolution along with Explanatory Statement so passed should also be enclosed. 8. The proposal should be accompanied with the declaration that the company has not defaulted in making repayments to the investors the amounts as and when they become due to them. 9. Certified copy of the Memorandum and Articles of Association of Applicant Company. 10. Shareholding pattern of the companies (applicant and borrower), common interest and controlling interest should specially state the interest of director along with his/her relative. (For section 372A applications). 11. List of Directors of the Board of both the companies (applicant and borrower companies wherever applicable) and disclosing inter se interest, if any. 12. Financial position and net worth of both the companies for three years along with copies of annual reports. 13. Certified copy of draft loan agreement. 14. If the loan is backed by any guarantees, then the name and particulars of the granters with their consent. 15. Details of the loan given/corporate guarantee given or security provided to any company/person/firm, etc., so far along with proof of compliance of section 372A, wherever applicable should also be furnished. 16. Details of the loan given/corporate guarantee given or security provided to any company/person/firm, etc., so far under section 295, details thereof should be provided. 17. Company should give a declaration to the effect that funds proposed to be loaned are not required for its working capital requirements at least for a year. 18. A certified copy of the loan scheme for the employees of the company, if any. 19. Justification for quantum of loan/guarantee or furnishing security by the company. 20. In respect of all proposals, a certificate from the statutory auditors or a company secretary in whole-time practice to the following effect be enclosed stating therein that : (a) the proposal is in conformity within the provisions of section 372A of the Companies Act, 1956; (b) the company has not defaulted in— (i) The repayment of any fixed deposits accepted by the company under section 58A of the Companies Act, 1956 or part thereof or interest thereon; (ii) Payment of dividend; (iii) Redemption/repayment of debenture and timely payment of interest thereon; (iv) Redemption preference shares; and (v) The company is regular in filing all forms/returns as required to be filed under the Companies Act, 1956. 21. A NOC/prior approval of public financial institutions/banks in case any term loan is subsisting. 44 Industrial Estate Chennai - 601064 XYZ Association Private Limited U 15600 DL 2004 PLC 019510 Rs. 125 lakhs Rs. 140 lakhs 50,00,000 295(1) Approval of the Central Government is sought under section 295(1) of the Companies Act, 1956 for grant of loan of Rs. 50,00 ,000 to M/s ABC Tools Pvt. Ltd. in which Mr. .... director of our company is a director. XYZ Engineering Company Limited ANNEX 140.3 (Refer Para 140.6) e-FORM NO. 24AB Form for filing application for giving loan, providing security or guarantee in connection with a loan [Pursuant to section 295 of the Companies Act, 1956] Note - All fields marked in * are to be mandatorily filled. 1. (a) *Corporate identity number (CIN) of company Pre-fill (b) Global location number (GLN) of company 2. (a) Name of the company (b) Address of the registered office of the company 3. Working results of the company for the last three financial years (a)(i) FY 1 From (DD/MM/YYYY) To (DD/MM/YYYY) (b) Net profit under section 198 (a)(ii) FY 2 From (DD/MM/YYYY) To (DD/MM/YYYY) (b) Net profit under section 198 (a)(iii) FY 3 From (DD/MM/YYYY) To (DD/MM/YYYY) (b) Net profit under section 198 4. (a) *Amount of loan or security or guarantee (in Rs.) (b)*Indicate the sub-section of section 295 of the Act under which the application is made. (c) *Details of the proposal mentioned in the application. 01/04/2003 31/03/2004 Rs. 100 lakhs 01/04/2004 31/03/2005 01/04/2005 31/03/2006 5. *Justification for the proposal. 6. (a) *Whether the loan will be backed by any guarantee Yes No (b) If yes, give details 7. (a) CIN of borrowing company Pre-fill (b) GLN of borrowing company (c) Name of borrowing company (d)(i) Common interest in shareholding pattern of the applicant company (ii) Controlling interest in shareholding pattern of the applicant company (iii) Common interest in shareholding pattern of the borrowing company (iv) Controlling interest in shareholding pattern of the borrowing company 8. (a) Name of the borrowing firm (b) Address of the borrowing firm i. Address Line I Line II ii. City iii. State iv. Country v. Pin code 9. Details of loan given or corporate guarantee or security provided to any company or person or firm etc. so far under section 295 along with details thereof and proof of compliance of section 372A wherever applicable 3 U 16410 TN 2004 PTC 017431 ABC Tools Pvt. Ltd. Nil Nil Nil Nil Nil The surplus funds available with the company is proposed to be given as a loan to M/s ABC Tools Pvt. Limited, who are our associate unit. Since they are in financial difficulty, it is proposed to lend a helping hand in the form of financial assistance which will help them to meet their production commitments to our unit. The loan will carry an interest of 10% which can be considered as a good return. Pre-fill 3 3 3 3 3 3 3 3 Attachments 1. Copy of board of directors resolution indicating Attach (i) The proposal of the company, terms and conditions (ii) Interest of directors or relatives, if any (iii) Rate of interest chargeable (iv) The schedule and terms of repayment (v) The loan is not being made out of borrowed funds of the company (vi) Any other major or important condition having bearing on the loan or financial position of the company 2. Copy of member resolution containing specific approval of required members along with explanatory statement— Attach 3. A declaration that company has defaulted in making repayments to the investors as and when they become due to them. Attach 4. List of directors of board of both the companies and disclosing inter se interest if any. Attach 5. *Copy of draft loan agreement. Attach 6. *Declaration to the effect that funds proposed to be loaned are not required for its working capital requirements at least for a year. Attach 7. Copy of loan scheme for the employees of the company, if any Attach 8. A no objection certificate (NOC) or prior approval of public financial institutions or banks in case any term loan is subsisting. Attach 9. *A declaration from the statutory auditor or a company secretary in whole-time practice that : Attach (a) The company has not defaulted in: (i) The repayment of any fixed deposits or part thereof or interest thereon (ii) Payment of dividend (iii) Redemption or repayment of debenture and timely payment of interest thereon (iv) Redemption of preference shares, and (b) The company is regular in filing all forms or returns as required to be filed under the Companies Act,1956 (c) The proposal is in conformity within the provisions of section 372A of the Companies Act, 1956 (d) That the company is not in any default on account of undisputed dues of the Central Government , e.g. income-tax, central excise etc. 10. Copy of letter from bank or financial institutions wherein the company has been asked to furnish corporate guarantee or security for the loan sanctioned to the borrower company Attach 11. Shareholding pattern of applicant and borrowing company Attach 12. Optional attachment(s), if any Attach 15/03/2006 XYZ Engineering Company Limited 3 3 List of attachments Remove attachment Declaration To the best of my knowledge and belief, the information given in this application and its attachments is correct and complete. I have been authorised by the board of directors’ resolution dated* (DD/MM/YYYY) to sign and submit this application To be digitally signed by Managing director or director or manager or secretary of the company Certificate It is hereby certified that I have verified the above particulars from the books of account and records of M/s. and found them to be true and correct. To be digitally signed by Chartered accountant or cost accountant or company secretary in whole-time practice Modify Check Form Pre-scrutiny Submit For office use only Digital signature of the authorising officer This e-Form is hereby approved This e-Form is hereby rejected Submit to BO MCA’s instructions for filling of e-Form 24AB Keep the following instructions in view : Sl. No. Detailed Instructions Note: Instructions are not provided for the fields which are self-explanatory Refer the relevant provisions of the Companies Act, 1956 and rules made thereunder with respect to the matter dealt in this eform 1. (a) Enter the ‘Corporate Identity Number’ (CIN) of the company. n You may find CIN by entering your existing registration number in the Find CIN/GLN service at the portal www.mca.gov.in 2. (a), (b) Click the “Pre-fill” button System will automatically display the name and registered office address of the company 3. Net profit as per section 198 is computed in the manner laid down in section 349 of the Companies Act, 1956. 6. (a) Select any one option for ‘Yes’ or ‘No’. Whether the loan is guaranteed by the guarantors (b) If the option ‘Yes’ is selected then give details about the guarantee given by guarantors. 7. (a) Enter the CIN of the Indian borrowing company n You may find CIN by entering the existing registration number of the borrowing company in the Find CIN/GLN service at the portal www.mca.gov.in Click the “Pre-fill” button System will automatically display the name of the borrowing company If it is a foreign borrowing company enter the name of the borrowing company 8. (a), (b) If the borrowing concern is a partnership firm or proprietorship enter the name and address of the borrowing firm. Attachments n Copy of board of directors resolution indicating: l The proposal of the company, terms and conditions l Interest of directors or relatives, if any l Specifying rate of interest chargeable l The schedule and terms of repayment l The loan is not being made out of borrowed funds of the company. l Any other major or important condition having bearing on the loan or financial position of the company n A declaration that company has not defaulted in making repayments to the investors as and when they become due to them. n Copy of draft loan agreement. n Declaration to the effect that funds proposed to be loaned are not required for its working capital requirements at least for a year. n A declaration from the statutory auditor or a company secretary that: (a) The company has not defaulted in: l The repayment of any fixed deposits or part thereof or interest thereon l Payment of dividend l Redemption or repayment of debenture and timely payment of interest thereon l Redemption of preference shares, and (b) The company is regular in filing all eforms or returns as required to be filed under the Companies Act, 1956 (c) The proposal is in conformity within the provisions of section 372A of the Companies Act, 1956 n Copy of member resolution containing specific approval of required members along with explanatory statement n List of directors of board of both the companies and disclosing inter se interest if any. n Copy of loan scheme for the employees of the company, if any n A no objection certificate (NOC) or prior approval of public financial institutions or banks in case any term loan is subsisting. n Copy of letter from bank or financial institutions wherein the company has been asked to furnish corporate guarantee or security for the loan sanctioned to the borrower company n Shareholding pattern of applicant and borrowing company n A Certificate from the Company Secretary/Chartered Accountant in whole time practice to the effect that the applicant company is not in any default on account of undisputed dues of the Central Govt. e.g. Incometax, Central Excise etc. Declaration Enter the date of board resolution authorising the signatory to sign and submit the application Signature The eform should be digitally signed by managing director or director or manager or secretary of the company duly authorised by the board of directors. Certificate The eform should be certified by chartered accountant or cost accountant or company secretary (in whole-time practice) by digitally signing the eform. See also MCA’s Common Instruction Kit. (Appendix 3) Sl. No. Detailed Instructions ANNEX 140.4 (Refer Para 140.6) APPLICATION TO CENTRAL GOVERNMENT FOR MAKING LOAN TO DIRECTOR The Secretary, Ministry of Company Affairs, New Delhi-110 001 Sub : Application to Central Government under section 295 of the Companies Act, 1956. Dear Sir, Our Company is engaged in the manufature of cements with an authorised share capital of Rs.5 crores and paid-up capital of Rs.4 crores, each consisting of equity shares of Rs.10 each. We intend giving a loan of Rs. 20 lakhs to M/s ABC Tools Private Limited in which Mr. Y, a Director of our company is also a director. The duration of the loan is 3 years and carries an interest of 10% per annum. The decision to grant loan has been taken out of commercial expediency and will be in the interest of the company and the terms and conditions are not prejudicial to the company. As per section 295 of the Companies Act, the aforesaid proposal requires the approval of the Central Government and accordingly this application is made. We request you to kindly accord your approval at the early date. The following documents are enlcosed: u A certified copy of Board Resolution. u Declaration that the company has not defaulted in making repayments to the investors the amounts as and when they become due to them. u A Certified copy of the Memorandum and Articles of Association of Applicant Company. u List of Directors of the Board of both the companies (applicant and borrower companies wherever applicable) and disclosing inter se interest, if any. u Financial position and net worth of both the companies for three years along with copies of annual reports. u Certified copy of draft loan agreement. u Details of the loan given/corporate guarantee given or security provided to any company/person/firm, etc., so far along with proof of compliance of section 372A. u Details of the loan given/corporate guarantee given or security provided to any company/person/firm, etc., so far under section 295. u Declaration to the effect that funds proposed to be loaned are not required for its working capital requirements at least for a year. u A certified copy of the loan scheme for the employees of the company. u Justification for quantum of loan. u A certificate from the statutory auditors to the following effect is enclosed stating therein that : (a) the company has not defaulted in- (i) The repayment of any Fixed deposits accepted by the company under section 58A of the Companies Act, 1956 or part thereof or interest thereon; (ii) Payment of dividend; (iii) Redemption/repayment of debenture and timely payment of interest thereon; (iv) Redemption preference shares; and (v) The company is regular in filing all forms/returns as required to be filed under the Companies Act, 1956. u Demand draft drawn in favour of Pay and Accounts Officer, Ministry of Company Affairs, for Rs.2000 towards fees. Thanking you, Yours faithfully, for XYZ ENGINEERING COMPANY LIMITED, SECRETARY Encl:a/a ANNEX 140.5 (Refer Para 140.8) BOARD RESOLUTION FOR MAKING LOAN TO DIRECTOR RESOLVED that pursuant to the approval of the Central Government vide order No. ................ dated................., sanction be and is accorded for making a loan of Rs. 50 lakhs to M/s. ABC Tools Private Ltd. in which Shri..................Managing Director of the company is a director as per terms and conditions contained in the loan agreement placed before this meeting and initialled by the Chairman for the purpose of identification. RESOLVED FURTHER that the Secretary of the company be authorised to comply with the necessary formalities in this regard.
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