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Inter corporate loans under section 372A

CS Pooja (Company Secretary) (305 Points)

14 March 2011

I have query regarding Section 372A & 295

1. If Public Limited company wishes to provide corporate gurantee for the personal loans of directors then will it fall under secton 295?and prior approval of Central Government is necessary in this case?

2. for deciding the limit of Board Resolution or Special Resolution whether latest annual balance sheet is to be considered?

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7 Replies

Divya K S (CA) (289 Points)
Replied 14 March 2011

Since the guarantee provided is corporate guarantee, & its given to a company though in regard to directors' loans, section 372A is attracted.

Yes, the latest balance sheet must be considered.

CS Pooja (Company Secretary) (305 Points)
Replied 14 March 2011

Company wishes to provide corporate guarantee to the personal loans of directors and not to any company. In this case whether section 295 is also applicable? and Central Governements permission is also required?

Divya K S (CA) (289 Points)
Replied 14 March 2011

In case of personal loans to directors, its not regarded as inter corporate loans & hence section 372A will not apply & permission of CG will not be required.

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 15 March 2011

Pooja is right. Giving corporate guarantee in connection with a loan made by any other person to any director of the company would fall under Section 295 of the Companies Act, 1956. Central Government approval would be required.

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Sudhir Garg (Service) (236 Points)
Replied 15 March 2011

Does not it attracts section 293(1) (a) on security providing company??

Regards- Sudhir

CS Pooja (Company Secretary) (305 Points)
Replied 15 March 2011

Mr. Sudhir can you please elaborate your query?

Regards,

Pooja

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 16 March 2011

Dear Mr. Sudhir,

How do you feel that it attracts 293(1)(a) which mandates consent of the shareholders for selling, leasing or otherwise disposing of the whole or substantially the whole of the undertaking of the company? Security providing will not fall under this category.

This case falls under Section 295(1)(a).

Others views are solicited.

Regards,

Jayashree