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Section 295 (1) (e) of Companies Act

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Aniruddha Paralikar

CA Final CS Mcom PGDFS

71 Points Joined April 2008

Hi,

According to Section 295(1)(e) of Companies Act--

"" No Company without obtaining the previous approval of Central Governments in that behalf, shall, make any loans to...... any Body corporate, the Board of Directors, Managing Director or Manager whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director, or directors, of the lending company.""

My query is what does the term "accustomed to act" mean?

whether it means majority of Board (more than 50%) should be common to fall within the perview of this section or

Only one single common director would attract the provisions of this section.

Replies (1)

vivek

751 Points Joined May 2009

Accoustomed to act simply means if one said or instructed then it is a kind of rule for other. If majority holding or majority say in board then it will be definetely but if there is no holding even though it can be. Like if there is a Chairman (Mr. K) of a Group Company "A" if Mr. A said anything to Mr. L who is MD of a group Company B and that is like mandate for him. Then Mr.L is accoustomed to act on instruction of Mr. K, whether Mr. K is holding any share or not.

Wait for expert's to comment.

Regards,