Company Secretary and Compliance Officer
[ Scorecard : 95159]
Posted On 06 March 2010 at 15:23
One of the basic difference between section 295 and 372A is that:
In Section 295 you have to obtain prior CG approval before giving direct or indirect loan to director and other associates specified in section 295. Hence section 295 is connected with loan to director (individual). If a company provides loan to a body corporate mentioned u/s 295 (1)(d) and (e) then also section 295 is applicable.
Whereas section 372A deals with inter-corporate transactions between 2 companies. In other words section 372A deals with inter-corporate loans, investment, guarantee and security.
Revert if there is any doubt or post your specific query.
In 295 Central Government approval is required (when the company falls under the situation as mentioned therein.
In 372A, no where Central Government Approval is required. All it says that within the limits of 100% of free reserves or 60% of paid up + free reserves, which ever is higher, only unanimous consent of the Board is required and if the limits are so crossed, then shareholder approval shall be required.
I have some query with regards to the section 295 and 372A: -
1 If Loan is given to a company in which Director of the lending company is also the director of the borrower company then it will fall into both the section 295 and 372A. Further, we will have to take approval under section 295 from the CG and pass special resolution u/s 372A if it crosses the specified limit.
Plz clarify if above is correct or not.
2. If Loan is given to a company in which Director of the lending company is also the director of the borrower company and Borrower company is a NBFC company then I think this will not fall within the purview of 295 but it will fall within the purview of 392A.