Applicability of Section 295

If company gives guarantee all employee of company for home loan and no special treatment is given to Director  then sec 295 is not applicable, the onus to prove so is on company and director 

Thanks Manmohan, 

In my case, the company is giving guarantee to only the prime director of the company and not to anyone else. It is hard to prove the difference by the company. 

For Compounding under Section 621A, the company has to make the default good and then only may proceeds for the compounding application. For making the default good, the company has to withdraw the guarantee given for the loan to the Director, otherwise it will be deemed as continuing offence till the guarantee continue.

Best Regards

CS Ashwini Kumar

Thanks Mr. Ashwini Kumar,

Please guide whether section 295 is applicable in this case or not? Any case law? 

Dear Mr. Raghav,

the provisions of Section 295 of the Act will be applicable  in your case and accordingly will have to comply with the provisions of the Act,

Regards

CS Ashwini Kumar

As per sub section (3) of section 295 of the companies act 1956, a public company can not give any loan or guarantee to its directors without the approval of Cent. Govt. if the section has been in force then the company has to take approval of Cent. Govt. within 6 months from the commencement of the section.

As per this case the director is applying for the home loan so that if the amount of loan is upto Rs. 10 lac then the approval of Cent. Govt is not required but still there will be applicability of section 295.

regards

Love Kumar  

Hi,

I differ with the opinon of Mr. Love Kumar and also request Mr. Love Kumar to go through the Government Guidelines for housing loan carefully before providing his own views.

Best  Regards

CS Ashwini Kumar

Dear Mr. Love  and  Mr. Raghav,

for your benefit, I am reproducing the text extracted from the book of "Chandratre and Ghosh" on Company Law as under:

Guidelines for grant of loans to directors for house building. In fulfillment of an assurance given to the Rajya Sabha on March 22, 1976, while answering supplementaries to Starred Question No. 275, the Government have formulated guidelines for the grant of loans by public limited companies to their directors taking into account all the relevant factors including the bank rate of 9 per cent and the rate of interest of 11 per cent per annum charged by the financial institutions payable half yearly for the grant of the long-term loans to the companies, which was laid on the Table of the House on November 12, 1976. According to these guidelines, no approval for the grant of loan would be given by the Government for the purchase of furniture. In regard to house building loan, it has been decided to prescribe a rate of interest of 10 per cent on the loans, taking into account the rate of interest charged by the Central Government from its employees and keeping in view the fact that the provision of a residential house is a welfare measure for the employees. The loan would be admissible only to the whole-time employees of a company, namely, managing directors, whole-time directors, etc. The amount of loan would not exceed a maximum of Rs. 1 lakh and would be given only where the cost of land together with the cost of construction does not exceed Rs. 2 lakhs (now increased to Rs. 10 lakhs vide Press Note, dated 20-8-1993, reproduced hereunder). The borrowers would be required to furnish sufficient security including mortgage of the land and the house to be constructed, for the repayment of the loan amount.

Section 295 of the Companies Act, 1956 prohibits a public company and a private company which is a subsidiary of a Public Company from making a loan to its Directors, etc. without prior approval of the Central Government. This Department has formulated guidelines for the grant of house building loans by such companies to their Managing Director/Whole-time Directors. The existing guidelines envisage grant of house building loan upto a ceiling of Rs. 5.00 lacs on payment of interest @ 10% per annum.

2. Various Associations of Trade and Industry have been making requests/ representations for increasing the ceiling of house building loans and the companies have also been making applications for grant of house building loans of Rs. 10.00 lacs or more at the reduced rate of interest, as per schemes applicable to the other officers of the company. In view of the increasing cost of land, construction and also the upward revision in the remuneration of Managerial Personnel of the Companies, the current ceiling on house building loan of Rs. 5.00 lacs has become out-dated and needs revision.

3. The Government has, therefore, decided to allow the companies to make house building loans to their Managing Director/Whole-time Directors without obtaining prior approval of the Central Government under section 295 of the Companies Act, 1956 on such terms and conditions as are applicable to its officers and employees. The approval of the Central Government will, however, be necessary in the case of companies having no such scheme or where the house building loan proposed to be made is not covered by the terms and conditions as are applicable to its officers and employees.[35]

10.6 Guidelines for loans for house building

"Section 295 shall not apply provided the loan is given to a director or his relative in their capacity as member and such transaction is disclosed in the annual accounts by a note."

I hope Mr. Raghav this is valuable for You..

Thanks

thanx Ashwani Sir.......................

Dear Mr. Kalash Joshi,

It's true that Section 295 is not applicable for  loans to members.

However a member director, being a director would attract the provisions of Section 295.  Is there any case law or department clarification to the effect that a member director is exempt from the provisions of Section 295.