Loan to Directors

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Rajesh Goyal (Querist)
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26 August 2010
Can a company advance loan to its directors,

What are the provisions and consequences, pls refer the section as well...

Regds,

Ankur Garg

Ankur Garg (Expert)
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26 August 2010 For the provisions relating to loan to director kindly refer section 295. For giving loan to director previous approval of central govt. is required.

Section 295 is not applicable to a private company.

Regards

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Rajesh Goyal

Rajesh Goyal (Querist)
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26 August 2010 It means if a private co. advances loan to directors, it shall not be considered as income.

I heard so in case of ltd. cos

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CA Kalpesh Gokani

CA Kalpesh Gokani (Expert)
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26 August 2010 Public ltd. co. can not advance loan to director except prior approval of central govt. is taken or which is in relation to oridinery course of business of the co. (Sec. 295)

This sec. doesn't apply to pvt. ltd. co.

Consequences: every person who is knowingly a party to such transaction is liable to fine up to Rs. 50,000 or imprisionment upto 6 months. Loan should be repaid by every liable person.. Director is liable to vacate office u/s 283

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Rajesh Goyal

Rajesh Goyal (Querist)
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26 August 2010 thanks...

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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26 August 2010 Your hearsay is correct as per section 2(22(e) of the income tax act,1961 is concerned. However, here also it is applicable to private limited company's.
N.B:- Though the query is related to corporate law, the above view is expressed to clear the hearsay.