MCA's clarification regarding loan to Public Ltd. companies

MCA 1738 views 3 replies

anthony

Finance

7918 Points Joined August 2007

MCA's clarification regarding loan to Public Ltd. companies under section 295 of Companies Act, 1956

Section 295 of the Companies Act, 1956 - Appointment of sole selling agents - Loans to directors, etc. - Clarification regarding loan to Public Limited Companies under section 295

GENERAL CIRCULAR NO. 24/2011, DATED 11-5-2011

It has come to the notice of the Ministry that some companies are making applications for getting prior approval of Central Government when they propose to make any loan to, or give any guarantee or provide any security in connection with a loan made by any other person to a Public Limited Company of which any such Director is a Director or a member even when the proposal does not fall under section 295(d) and section 295(e) of the Companies Act, 1956.

2. Companies are requested to note that when the beneficiary of the loan/guarantee/security is a Public Limited Company, approval of Central Government should only be sought if the provisions of sub-section (d) or (e) of section 295 of the Companies Act, 1956 are attracted. The application should also clearly bring out the facts in this regard.

Replies (3)

Varun Madaan

trainee

32 Points Joined May 2011

hii..

my query is also about sec. 295

i wanted to know that if a public company wants to give loan to another public co. in which the board of directors are same and holding more than 25% of the voting right and if a co. cant do so could it be possible by diluting voting rights .

CS Ankur Srivastava

Company Secretary & Compliance Officer

17858 Points Joined November 2008

No, in your case Public Company Can not give loan to other Public Company without obtaining prior approval of Central Government. Because your Board of Directors are same and it would fall under section 295(1)(e).

Preety

Company Secretary

96 Points Joined October 2009

Hello friends.

Kindly clarify when does Section 295 (1) (e) becomes attracted. For this all the Directors hav to be Common or it will still get attracted if there is one Common Director on board of both lending & Borrowng Co . Pl clarify asap.

Thanks with Regards

Preety