clarification on Section 295_circular dated 11 May, 2011

Originally posted by : Dipika Verma
	Hi, Can anyone explain MCA's General Circular dated 11th May, 2011 in simple language which was on section 295 of the Companies Act, 1956? I just want to know what amendment has MCA bought with this circular? The Circular is attached for your reference.

Hi Dipika

Some public companies not able to interpret the section correctly have been taking approval of CG though not required.

So the Circular clarifies that CG approval is only required when the above Sections 295 (1) (d) & (e) attracts.

As per my understanding,

Any Loan / Guarantee or Security given to a Body Corporate ( Public Limited Companies) , approval of CG would be required

only when :-

a) voting power of the shareholders who are also directors exceed 25% or more in any general meeting

( where proposal is to take such loan) -Sec 295 (1) ( d)

b) where the BOD / MD of borrowing company are instructed or follow instructions & directions of Board of Lending Company.

( Sec 295 (1) (E) )

Eg:

Assume Lending Company as " L" & Borrowing Company as "B".

a). Voting power exceed 25%.

In general meeting of Company "B", where there are 8 Shareholders of which 3 are directors cum shareholders.

The proposal for taking Loan or security from Lending Company (L) is approved by all 3 shareholders

( 3/8*100 = 37%Control), so the voting power exceeds 25% and thus would require CG Approval.

Hope this makes clear in terms of understanding.

Other views if any solicitied.

regards

Santosh Shah