Raghav Kulkarni (Company Secretary) (32 Points)
28 January 2011Dear Professionals,
Mr. X is a Director of a public limited company ABC Ltd. He is applying for the Home loan for which, the company is giving guarantee? Whether Section 295 is applicable?
In case if he has already applied and availed of loan, please guide with respect to the Compounding of Offences.
Manmohan ACA, CS
(Chartered Accountant )
(14243 Points)
Replied 28 January 2011
If company gives guarantee all employee of company for home loan and no special treatment is given to Director then sec 295 is not applicable, the onus to prove so is on company and director
Raghav Kulkarni
(Company Secretary)
(32 Points)
Replied 28 January 2011
Thanks Manmohan,
In my case, the company is giving guarantee to only the prime director of the company and not to anyone else. It is hard to prove the difference by the company.
cs ashwini kumar
(Company Secretary in Practice)
(173 Points)
Replied 28 January 2011
For Compounding under Section 621A, the company has to make the default good and then only may proceeds for the compounding application. For making the default good, the company has to withdraw the guarantee given for the loan to the Director, otherwise it will be deemed as continuing offence till the guarantee continue.
Best Regards
CS Ashwini Kumar
Raghav Kulkarni
(Company Secretary)
(32 Points)
Replied 28 January 2011
Thanks Mr. Ashwini Kumar,
Please guide whether section 295 is applicable in this case or not? Any case law?
cs ashwini kumar
(Company Secretary in Practice)
(173 Points)
Replied 28 January 2011
Dear Mr. Raghav,
the provisions of Section 295 of the Act will be applicable in your case and accordingly will have to comply with the provisions of the Act,
Regards
CS Ashwini Kumar
Love Kumar
(COMPANY SECRETARY)
(101 Points)
Replied 28 January 2011
As per sub section (3) of section 295 of the companies act 1956, a public company can not give any loan or guarantee to its directors without the approval of Cent. Govt. if the section has been in force then the company has to take approval of Cent. Govt. within 6 months from the commencement of the section.
As per this case the director is applying for the home loan so that if the amount of loan is upto Rs. 10 lac then the approval of Cent. Govt is not required but still there will be applicability of section 295.
regards
Love Kumar
cs ashwini kumar
(Company Secretary in Practice)
(173 Points)
Replied 28 January 2011
Hi,
I differ with the opinon of Mr. Love Kumar and also request Mr. Love Kumar to go through the Government Guidelines for housing loan carefully before providing his own views.
Best Regards
CS Ashwini Kumar
cs ashwini kumar
(Company Secretary in Practice)
(173 Points)
Replied 28 January 2011
Dear Mr. Love and Mr. Raghav,
for your benefit, I am reproducing the text extracted from the book of "Chandratre and Ghosh" on Company Law as under:
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 lakhs vide 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.[35]
10.6 Guidelines for loans for house building
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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. |
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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). |
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3. |
The maximum amount of loan should be restricted to Rs. 1 lakh. |
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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. |
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5. |
The rate of interest charged on the loan should be 10 per cent per annum uniformly on the entire amount of loan. |
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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. |
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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. |
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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. |
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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.
Best Regards CS Ashwini Kumar |
jatin uniyal
(@@@@@@)
(47 Points)
Replied 28 January 2011
Love Kumar
(COMPANY SECRETARY)
(101 Points)
Replied 28 January 2011
thanx Ashwani Sir.......................
Jayashree S Iyer
(Company Secretary)
(3224 Points)
Replied 29 January 2011
Dear Mr. Kalash Joshi,
It's true that Section 295 is not applicable for loans to members.
However a member director, being a director would attract the provisions of Section 295. Is there any case law or department clarification to the effect that a member director is exempt from the provisions of Section 295.
CAclubindia
