DIRECTOR CURRENT ACCOUNT
This query is : Resolved
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.
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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