Section 295

This query is : Resolved

Bharath Kumar (Querist)
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11 June 2011 Director of Ltd company has applied for loan with NBFC. company is joining as co-applicant / guarantor to the loan.
Should the company get Central Govt clearance

CA Suresh Jain

CA Suresh Jain (Expert)
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12 June 2011 The section 295 is not applicable to
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;
and therefore, Central Gove permission is required. sureshjain.nj@gmail.com

Bharath Kumar

Bharath Kumar (Querist)
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13 June 2011 Would request views of other members also

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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23 July 2025 Yes, under Section 295 of the Companies Act, 1956, Central Government (CG) approval is required if a public limited company (or a private company that is a subsidiary of a public company) provides loan, guarantee, or security to:

🧾 Covered Persons under Section 295(1)
Any director of the company,

Any director of its holding company,

Any partner or relative of any such director,

Any firm in which such director or relative is a partner,

Any private company in which such director is a director or member,

Any body corporate where at least 25% of the voting power is held by such director or a group as mentioned above,

Any body corporate whose Board is accustomed to act on the directions of the Board or any director(s) of the lending company.

🔍 Your Case
A director has applied for a loan from an NBFC.

The company is joining as co-applicant or guarantor.

This amounts to providing a guarantee/security on behalf of a director.

Hence, Section 295 is triggered.

So, prior approval from the Central Government is mandatory before entering such a transaction.

✅ Exceptions to Section 295
The following companies are exempt from Section 295:

Private limited companies (not subsidiaries of public companies),

Banking companies, and

Loans made by holding companies to their wholly owned subsidiaries and vice versa (under certain conditions).

Unless the company is exempt as above, CG approval is a must.

⚠️ Non-Compliance Consequences
If the company enters into the arrangement without CG approval, the transaction is void.

Penal consequences for the company and every officer in default, including fine and/or imprisonment.

📝 Summary
Situation Is CG Approval Needed?
Public limited company joins as guarantor for director’s loan ✅ Yes
Private company (not subsidiary of public co) joins as guarantor ❌ No
Director borrowing from NBFC with company as co-applicant/guarantor ✅ Yes, if company is public

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