Guarantee by Pvt. Ltd. Company to Bankers of one of Director

Hi...

Rightly said that the provisions of section 295 of the Companies Act, 1956 will not be applicable in your case as the same are not applicable to an Independent Private Company. Hence,no need to obtain the previous approval of the Central Government in Form 24AB.

However, section 295 covers giving guarantee or security i connection with a loan made by a third party to a firm in which any Director of the Company or his relative is a partner - hence, in my opinion the wordings include only a partnership firm and is silent on Proprietorship firm??????  

In my opinion your Company can give corporate guarantee to the bankers of the  Proprietorship firm only by passing a Board Resolution and this will be suffice in my opinion....

God Bless

Udit Sharma

Dear Udit,

Thanks for your prompt reply. You have rightly said that the provisions of section 295 of the Companies Act, 1956 will not be applicable in my case as the same are not applicable to an Independent Private Company as per Sec-295 (2) (a). Hence, no need to obtain the previous approval of the Central Government.

However, section 295 covers giving guarantee or security in connection with a loan made by a third party to a firm in which any Director of the Company or his relative is a partner - hence, in your opinion the wordings include only a partnership firm and is silent on Proprietorship firm. Had this company not been an independent pvt. company, in my opinion, guarantee to proprietary firm should have been covered u/s-295. In Income Tax Act, there is no difference between an individual and his sole proprietary firm - they are one and the same. I am not sure about Companies Act provisions reg. proprietary firm of director i.e. whether they are one or different ?

Let us wait for more clarifications from other experts.

Thanks