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query regarding section 295

Ishupal Kang (student) (26 Points)

03 February 2010

hey i have a query related to section 295 of the company act i.e loans to direcotrs

i wnt to kno that if a guarantee has been given in contravention of section 295 by some mistake, wat is d status of that contract for guarantee......will d contract will b invalid and void...or d creditor can still sue the company (surety) for the money lent to the principal debtor .......plzz help

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7 Replies

Max Payne (employed) (2569 Points)
Replied 03 February 2010

Dear Ishpul,

I dont think it affects the guarantee.. Unless the person who accepted the guarantee was aware or had reason to believe that the guarantee was made in contravention of sec 295... guarantee is largely governed by the contract act...

The directors contravening sec 295 will have to vacate office under sec 283, plus they could face a fine upto 50,000 or 6months imprisonment.....

every person who knowingly was party to the default in sec 295 will be personally liable to the lending company to ensure that the money is returned to the company.

Its best to get revoke the guarantee if possible, return any moneys due to guarantor company and then go for compounding of the offence.... (in my opinion)

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Ishupal Kang (student) (26 Points)
Replied 03 February 2010

hey can u please gimme ur email id so dat i can discuss dis in a bit elaborative manner...m ttachin a file plzz go thru it

Attached File : 41 national corporate law moot 2010 case.pdf downloaded: 260 times

Max Payne (employed) (2569 Points)
Replied 03 February 2010

Dear Ishpul,

My opinion is that of a student and not that of an expert... Please wait for others' opinions also

But like i said, the person receiving guarantee should have ensured that the provisions of the companies act, MOA and AOA, are satisfied.... I am not sure under what provision of the companies act the guarantee is void, but it runs on the same principle as the Doctrine of Constructive Notice.

Banks normally do not place reliance on the Doctrine of Indoor management

They insist on certified copies of all necessary resolutions before giving any facilities... So i guess the bank had been sufficiently negligent...

397 and 398 are not my forte, so i wont comment anything on mismanagement and oppression....

Ravindra Mishra (Trainee) (24 Points)
Replied 18 March 2010

Hi,

My query is that, Two corporate is there X & Y, Director of both companies are same. M/s X wants to take loan from Bank and term loan crossing the limit of 60%, and M/s Y is a guarantor for that loan.

Whether 24AB is applicable, whether 295 of 372A is also applicable to that .

What is the procedure of approving this loan as a valid one under company law.

Regards

Ravindra Mishra

HARDIK (COMPANY SECRETARY NCFM (Corporate Governance )) (664 Points)
Replied 18 March 2010

Whether as per your query companies are public or private. Since section does not apply to independent private companies. Also whether holding subsidiary relationship exits between x and y. Since as per section 295(2)(c) this section does not apply to any gurantee provided by holding company in respect of any loan made to its subsidiary.