15 March 2012
we know that the approval of Central Government under section 295 is not required for purpose of grant of house building loan to managing directors whole-time directors.
Can anyone plz send me the circualar stating the above exemption.
Guidelines for grant of loans to directors for house building.
In fulfillment of an assurance given to the Rajya Sabha on March 22, 1976, while answering supplementaries to Starred Question No. 275, the Government have formulated guidelines for the grant of loans by public limited companies to their directors taking into account all the relevant factors including the bank rate of 9 per cent and the rate of interest of 11 per cent per annum charged by the financial institutions payable half yearly for the grant of the long-term loans to the companies, which was laid on the Table of the House on November 12, 1976. According to these guidelines, no approval for the grant of loan would be given by the Government for the purchase of furniture. In regard to house building loan, it has been decided to prescribe a rate of interest of 10 per cent on the loans, taking into account the rate of interest charged by the Central Government from its employees and keeping in view the fact that the provision of a residential house is a welfare measure for the employees. The loan would be admissible only to the whole-time employees of a company, namely, managing directors, whole-time directors, etc. The amount of loan would not exceed a maximum of Rs. 1 lakh and would be given only where the cost of land together with the cost of construction does not exceed Rs. 2 lakhs (now increased to Rs. 10 lakhsvide Press Note, dated 20-8-1993, reproduced hereunder). The borrowers would be required to furnish sufficient security including mortgage of the land and the house to be constructed, for the repayment of the loan amount. Section 295 of the Companies Act, 1956 prohibits a public company and a private company which is a subsidiary of a Public Company from making a loan to its Directors, etc. without prior approval of the Central Government. This Department has formulated guidelines for the grant of house building loans by such companies to their Managing Director/Whole-time Directors. The existing guidelines envisage grant of house building loan upto a ceiling of Rs. 5.00 lacs on payment of interest @ 10% per annum. 2. Various Associations of Trade and Industry have been making requests/ representations for increasing the ceiling of house building loans and the companies have also been making applications for grant of house building loans of Rs. 10.00 lacs or more at the reduced rate of interest, as per schemes applicable to the other officers of the company. In view of the increasing cost of land, construction and also the upward revision in the remuneration of Managerial Personnel of the Companies, the current ceiling on house building loan of Rs. 5.00 lacs has become out-dated and needs revision. 3. The Government has, therefore, decided to allow the companies to make house building loans to their Managing Director/Whole-time Directors without obtaining prior approval of the Central Government under section 295 of the Companies Act, 1956 on such terms and conditions as are applicable to its officers and employees. The approval of the Central Government will, however, be necessary in the case of companies having no such scheme or where the house building loan proposed to be made is not covered by the terms and conditions as are applicable to its officers and employees.
Guidelines for loans for house building
1. The plot of land should be in the name of the managing director/whole-time director or his wife with a clear title to its ownership who alone will be eligible for the grant of loan. 2. The cost of the land together with the cost of construction should not exceed a sum of Rs. 2 lakhs (increased Rs. Lakhs vide Press Note, dated 20-8-1993, reproduced,supra). 3. The maximum amount of loan should be restricted to Rs. 1 lakh. 4. The borrower should execute a mortgage deed mortgaging the plot of land as also the structure to be constructed thereon as the security towards repayment of loan in addition to the personal guarantee that may be obtained from the borrower. 5. The rate of interest charged on the loan should be 10 per cent per annum uniformly on the entire amount of loan. 6. The borrower should furnish a certificate from an approved valuer that the amount of loan has been spent for the purpose for which it was sanctioned. 7. The loan should be advanced from the surplus funds available with the company concerned and no borrowing from outside be allowed for this purpose. 8. The companies who are in arrears in the payment of the provident fund dues of its employees will not be entitled to disburse loans. 9. The loan should be recoverable within a period of 15 years from the date of disbursement of the loan or until the borrower ceases to be in the service of the company, whichever is earlier.
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