Loan to directors
This query is : Resolved
Guest
Guest
(Querist)
10 October 2013
Can a pvt and public co. give loan to director? if yes then how and what are the consequences as per Income tax act and Co. Law ?
12 October 2013
Hi
Kindly confirm that you are talking under new Act or under CA, 1956.
Kindly confirm that you are talking under new Act or under CA, 1956.
Guest
Guest
(Querist)
12 October 2013
dear Ajay sir it is as per co. Act 1956 ... and pls sir consider new Co. Act if it makes any difference .....:)
12 October 2013
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.
Section 295 of the Companies Act, 1956 is applicable to a public company or a private company, which is a subsidiary of a public company. Therefore, a private company shall be exempted from the provisions of section 295 of the Act.
Following companies are exempted from provisions of section 295 and these companies can give loan to their directors without the approval of Central Government:
(a) Private Company which is not a subsidiary of public company;
(b) Banking Company;
(c) Government 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.
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.
Section 295 of the Companies Act, 1956 is applicable to a public company or a private company, which is a subsidiary of a public company. Therefore, a private company shall be exempted from the provisions of section 295 of the Act.
Following companies are exempted from provisions of section 295 and these companies can give loan to their directors without the approval of Central Government:
(a) Private Company which is not a subsidiary of public company;
(b) Banking Company;
(c) Government 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.
12 October 2013
Persons covered under section 295:
The section has wider scope and any transaction with the following types of persons by a public company or a private company which is a subsidiary of a public company shall be within the purview of section:—
(a) any director of the lending company;
(b) any director of the holding company;
(c) any partner of any such director;
(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 at a general meeting by any director or by two or more directors together; and
(j) 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.
Persons covered under section 295:
The section has wider scope and any transaction with the following types of persons by a public company or a private company which is a subsidiary of a public company shall be within the purview of section:—
(a) any director of the lending company;
(b) any director of the holding company;
(c) any partner of any such director;
(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 at a general meeting by any director or by two or more directors together; and
(j) 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.
12 October 2013
Non-applicability of the provisions of section 295:
Any transaction of making any loan or giving any guarantee or providing any security in connection with a loan made by any other person to, or to any other person will not apply on:—
1. any loan made to an employee of the company, who is not a relative of any director;
2. any loan or advance made to a trust in which directors are trustees;
3. any quasi-loan;
4. any advance or deposit made in connection with leasing/hire-purchase transaction;
5. any advance payment of salary given to an employee who is a relative of a director as per the rules of the company;
6. any investment made in acquiring residential accommodation for director(s) (whether by way of purchase or entering into a lease agreement);
7. house building loan given to a director subject to the guidelines issued for that purpose by the Central Government;
8. any loan made to a Registered Co-operative Society;
9. any loan given by a holding company to any director of its subsidiary company;
10. 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;
11. 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.
Non-applicability of the provisions of section 295:
Any transaction of making any loan or giving any guarantee or providing any security in connection with a loan made by any other person to, or to any other person will not apply on:—
1. any loan made to an employee of the company, who is not a relative of any director;
2. any loan or advance made to a trust in which directors are trustees;
3. any quasi-loan;
4. any advance or deposit made in connection with leasing/hire-purchase transaction;
5. any advance payment of salary given to an employee who is a relative of a director as per the rules of the company;
6. any investment made in acquiring residential accommodation for director(s) (whether by way of purchase or entering into a lease agreement);
7. house building loan given to a director subject to the guidelines issued for that purpose by the Central Government;
8. any loan made to a Registered Co-operative Society;
9. any loan given by a holding company to any director of its subsidiary company;
10. 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;
11. 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.
12 October 2013
As per New Companies Act, 2013: Section 185 & 186 deal with loan to director.
185. (1) Save as otherwise provided in this Act, no company shall, directly or indirectly,
advance any loan, including any loan represented by a book debt, to any of its directors or
to any other person in whom the director is interested or give any guarantee or provide any
security in connection with any loan taken by him or such other person:
Provided that nothing contained in this sub-section shall apply to—
(a) the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company to all its
employees; or
(ii) pursuant to any scheme approved by the members by a special
resolution; or
(b) a company which in the ordinary course of its business provides loans or
gives guarantees or securities for the due repayment of any loan and in respect of suchloans an interest is charged at a rate not less than the bank rate declared by the
Reserve Bank of India.
Explanation.—For the purposes of this section, the expression “to any other
person in whom director is interested” means—
(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 twentyfive
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.
185. (1) Save as otherwise provided in this Act, no company shall, directly or indirectly,
advance any loan, including any loan represented by a book debt, to any of its directors or
to any other person in whom the director is interested or give any guarantee or provide any
security in connection with any loan taken by him or such other person:
Provided that nothing contained in this sub-section shall apply to—
(a) the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company to all its
employees; or
(ii) pursuant to any scheme approved by the members by a special
resolution; or
(b) a company which in the ordinary course of its business provides loans or
gives guarantees or securities for the due repayment of any loan and in respect of suchloans an interest is charged at a rate not less than the bank rate declared by the
Reserve Bank of India.
Explanation.—For the purposes of this section, the expression “to any other
person in whom director is interested” means—
(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 twentyfive
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.
12 October 2013
Sub Section (2) of Section 185:
(2) If any loan is advanced or a guarantee or security is given or provided in
contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.
(2) If any loan is advanced or a guarantee or security is given or provided in
contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.
12 October 2013
Section 186. (1) Without prejudice to the provisions contained in this Act, a company shall unless otherwise prescribed, make investment through not more than two layers of investment companies:
Provided that the provisions of this sub-section shall not affect,—
(i) a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers
as per the laws of such country;
(ii) a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force.
(2) No company shall directly or indirectly —
(a) give any loan to any person or other body corporate;
(b) give any guarantee or provide security in connection with a loan to any other body corporate or person; and
Provided that the provisions of this sub-section shall not affect,—
(i) a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers
as per the laws of such country;
(ii) a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force.
(2) No company shall directly or indirectly —
(a) give any loan to any person or other body corporate;
(b) give any guarantee or provide security in connection with a loan to any other body corporate or person; and
Guest
Guest
(Querist)
13 October 2013
thank u sooo much Dear Ajay sir ... :)
13 October 2013
My Pleasure............
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