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Director's Loan

Sunil Kumar Shrivas (Job) (232 Points)

28 June 2010

Hi all,

Can somebody tell me, can loan be provided to Director's of company if yes what is the limit of amount (0 - ?)

Please tell me as soon as possible.

Thanks

Sunil

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8 Replies

Yogesh Bhatt (Company Secretary) (475 Points)
Replied 28 June 2010

Yes, Loan can provide to director.

Loan to Directors and the Provisions of the Companies Act

Loan to Directors and the Provisions of the Companies Act

Loans to the direcotors of the company given by the company are governed by section 295 of the companies act, 1956. Section 295 put restrictions on a public company or a private company being a subsidiary of a public company intending to make any type of transaction with a director of the company or partner or relative of a director, etc. whether, directly or indirectly to make any loan, or to give any guarantee, or to provide any security in connection with a loan made by any other person to, or to any other person by, and it calls for obtaining the previous approval of the Central Government. This section is applicable to a public company or a private company, which is a subsidiary of a public company.

Exemption

(a) Private Company which is not a subsidiary of public company;

(b) Banking Company;

(d) Loan made by holding company to its subsidiary company;

(e) Guarantee given or security provided by holding company in respect of any loan made to its subsidiary company

Persons covered under section 295

(a) Any director of the lending company;

(b) Any director of the holding company;

(d) Any relative of any such director;

(e) Any firm in which any such director is a partner;

(f) Any firm in which a relative of such a director is a partner;

(g) Any private company of which any such director is a director;

(h) Any private company of which any such director is a member;

(i) any body corporate of which not less than 25% of the total voting power may be exercised or controlled t a general meeting by any director or by two or more directors together; and

(ii) 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

Non-applicability of the provisions of section 295

any loan made to an employee of the company, who is not a relative of any director;
any loan or advance made to a trust in which directors are trustees;
any quasi-loan;
any advance or deposit made in connection with leasing/hire-purchase transaction;
any advance payment of salary given to an employee who is a relative of a director as per the rules of the company;
any investment made in acquiring residential accommodation for director(s) (whether by way of purchase or entering into a lease agreement);
house building loan given to a director subject to the guidelines issued for that purpose by the Central Government;
any loan made to a Registered Co-operative Society;
any loan given by a holding company to any director of its subsidiary company;
advance given for services to be rendered or goods to be supplied provided it is reasonable and commensurate with the services to be rendered or goods to be supplied;
section 295(1) does not apply to a government company provided that such company has obtained the approval of the Ministry or Department of the Central Government, which is administratively in charge of the company, or as the case may be or the State Government.

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Yogesh Bhatt (Company Secretary) (475 Points)
Replied 28 June 2010

as per sec :

295. Loans to directors, etc.

(1) Save as otherwise provided in subsection (2) no company (hereinafter in this section referred to as "the lending company" [without obtaining the previous approval of the Central Government in that behalf shall, directly or indirectly,] make any loan to, or give any guarantee or provide any security in connection with a loan made by any other person to, or to any other person by,

(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;

(b) any firm in which any such director or relative is a partner;

(c) any private company of which any such director is a director or member;

(d) any body corporate at a general meeting of which not less than twenty-five per cent of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or

(e) 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.

[(2) Sub-section (1) shall not apply to-

(a) any loan made, guarantee given or security provided-

(i) by a private company unless it is a subsidiary of a public company, or

(ii) by a banking company;

(b) any loan made by a holding company to its subsidiary company;]

[(c) any guarantee given or security provided by a holding company in respect of any loan made to its subsidiary company.]

(3) Where any loan made, guarantee given or security provided by a lending company and outstanding at the commencement of this Act could not have been made, given or provided, without the previous approval of the Central Government, if this section has then been in force, the lending company shall, within six months from the commencement of this Act or such further time not exceeding six months as the Central Government may grant for that purpose, either obtain the approval of the Central Government to the transaction or enforce the repayment of the loan made, or in connection with which the guarantee was given or the security was provided, notwithstanding any agreement to the contrary.

(4) Every person who is knowing a party to any contravention of sub-section (1) or (3), including in particular any person to whom the loan is made or who has taken the loan is respect of which the guarantee is given or the security is provided, shall be punishable either with fine which may extend to [fifty thousand rupees] or with simple imprisonment for a term which may extend to six months.

Provided that where any such loan, or any loan in connection with which any such guarantee of security has been given or provided by the lending company, has been repaid in full, no punishment by way of imprisonment shall be imposed under this sub-section; and where the loan has been repaid in part, the maximum punishment which may be imposed under this sub-section by way of imprisonment shall be proportionately reduced.

(5) All persons who are knowingly parties to any contravention of sub-section (1) or (3) shall be liable, jointly and severally, to the lending company for the repayment of the loan or for making good the sum which the lending company may have been called upon to pay in virtue of the guarantee given of the security provided by such company.

(6) No officer of the lending company or of the borrowing body corporate shall be punishable under sub-section (4) or shall incur the liability referred to it sub-section (5) in respect of any loan made, guarantee given or security provided [after the 1st day of April, 1956] in contravention of clause (d) or (e) of sub-section (1) unless at the time when the loan was made, the guarantee was given or the security was provided by the lending company, he knew or had express notice that that clause was being contravened thereby.

Regards.

Yogesh Bhatt (Company Secretary) (475 Points)
Replied 28 June 2010

Dear sunil.

I hope u understood easily .if query . pls welcome.

Sunil Kumar Shrivas (Job) (232 Points)
Replied 28 June 2010

Thanks for reply

Please tell me about loan limit to director too.

Thanks

Sunil Kumar Shrivas (Job) (232 Points)
Replied 28 June 2010

Thanks for reply

Please tell me about loan limit to director.

Thanks

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Yogesh Bhatt (Company Secretary) (475 Points)
Replied 28 June 2010

IF u go through provision there is no limite is prescribed in Loan to Director but CG approval is necessary.

regards.

(Guest)

Agree with Yogesh

Niraj (Self Employed) (67 Points)
Replied 13 September 2010

As Pvt. Ltd. company which is not subsidiary of a Public Company is exempt, hence is this correct that without any approval and without any limit, loan can be given by a Pvt. Ltd. Company to its' Directors or to Pvt. companies in which such directors are interested as directors and / or major shareholders or loan to Proprietary firm of such Director ? Please clarify.

Thanks in advance