04 July 2009
Dear experts, please answer my query.
An unlisted public company gave an loan interest free Rs.265,000 to a director X in contravention of Section 295 during the FY 2006-07. The auditor qualified this in his report, but no action was taken by ROC. Now this director has resigned from the company on 01.04.2009 and transferred his entire shares. During the period, he has returned only about Rs.3,000. The company is considering to write off Rs.262,000 due from him. Is this possible? what are the procedures to be followed?
Another Director Y was given a advance for conducting the business of the company. Mr.Y has resigned from the board with some surplus money due to the company, and he also transferred his stake. Can this amount be written off as an irrecoverable debt? Is there a process to be followed?
What are the adverse implications from govt authorities in both the cases?
Please explain to me what to do.. i will be very grateful.. thanks in advance...
Consequence of contravention of section 295 would be:
1. The director shall be liable to vacation of his office u/s 283. 2. Every person who is knowing a party to any contravention 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. {Section 299(4)}. 3. All persons who are knowingly parties to any contravention shall be liable 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. {Section 299(5)}
If you want to write off the amount of irrecoverable debt the same would be equal to remit amount of debt due from the director by virtue of Section 293(1)(b) for which you have to take approval of shareholder through ordinary resolution in a General Meeting.
Please read Section 293(1)(b) of the companies act, 1956 for exact provision.
But please help me out here also. What can we state in the explanatory statement for this resolution.. What reasons can we say for the remission.. Its not a well governed or financially sound company.. In fact it is not even able to commence its business and has been running into severe cash losses since inception..
I dont suppose this will be allowed as a bad debt for income tax... do u know the implication sir?
Most importantly as an auditor of such a company, how to protect oneself?
CAclubindia
