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Section 295 -- advances to directors

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Dipjyoti Majumdar

CA in service & CS. dipmaj@

2877 Points Posted on 27 February 2013

Friends

What is the position if a public limitd company wants to give advance to a Director. Does it attract section 295. The section, you all are aware of, deals with loan. Will the nature of advance be examined by Regulatory authorities in such a case.

Please enlighten.

Regards,

Replies (1)

Devendra

Chartered Accountant

3769 Points Posted on 27 February 2013

According to Section 295 of the COmpanies Act, 1956, if a Public Company wants to give Loan / advance to Director, then the Public Co. has to obtain prior approval of the Central Government.

Here are certain requirements to be followed, to obtain approval from CENTRAL GOVERNMENT. That means, before applying for the approval, company needs to make sure that these all requirements are followed. Few examples are given below, i.e. what all information a company should provide to get approval from government:

Rate of Interest of Loan.
Amount of Loan/Security/Guarantee.
Terms and conditions attached with the Loan, if any.
Certain Documents are also sent, like-

Copy of Board Resolution
Copy of Loan Agreement
Copy of List of Directors and other company, if any.
Explanation Statement, justifying the amount, interest and terms attached to Loan.
NOC of financial institutions.