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Loan to Directors and the Provisions of the Companies Act

Loan to Directors and the Provisions of the Companies Act

Loans to the direcotors of the company given by the company are governed by section 295 of the companies act, 1956. Section 295 put restrictions on a public company or a private company being a subsidiary of a public company intending to make any type of transaction with a director of the company or partner or relative of a director, etc. whether, directly or indirectly to make any loan, or to give any guarantee, or to provide any security in connection with a loan made by any other person to, or to any other person by, and it calls for obtaining the previous approval of the Central Government. This section is applicable to a public company or a private company, which is a subsidiary of a public company.

Exemption

(a) Private Company which is not a subsidiary of public company;

(b) Banking Company;

(c) Government Company'

(d) Loan made by holding company to its subsidiary company;

(e) Guarantee given or security provided by holding company in respect of any loan made to its subsidiary company

Persons covered under section 295

(a) Any director of the lending company;

(b) Any director of the holding company;

(c) Any partner of any such director;

(d) Any relative of any such director;

(e) Any firm in which any such director is a partner;

(f) Any firm in which a relative of such a director is a partner;

(g) Any private company of which any such director is a director;

(h) Any private company of which any such director is a member;

(i) any body corporate of which not less than 25% of the total voting power may be exercised or controlled t a general meeting by any director or by two or more directors together; and

(ii) 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

.

Non-applicability of the provisions of section 295

  • any loan made to an employee of the company, who is not a relative of any director;
  • any loan or advance made to a trust in which directors are trustees;
  • any quasi-loan;
  • any advance or deposit made in connection with leasing/hire-purchase transaction;
  • any advance payment of salary given to an employee who is a relative of a director as per the rules of the company;
  • any investment made in acquiring residential accommodation for director(s) (whether by way of purchase or entering into a lease agreement);
  • house building loan given to a director subject to the guidelines issued for that purpose by the Central Government;
  • any loan made to a Registered Co-operative Society;
  • any loan given by a holding company to any director of its subsidiary company;
  • advance given for services to be rendered or goods to be supplied provided it is reasonable and commensurate with the services to be rendered or goods to be supplied;
  • section 295(1) does not apply to a government company provided that such company has obtained the approval of the Ministry or Department of the Central Government, which is administratively in charge of the company, or as the case may be or the State Government.

Comments
 K Degaleeswaran July 13, 2010
Dear Sir,

Loan given to executive before he was appointed as Director is violation of this sec. 295 if it was given without any BR and / Central Govt. Approval.

please share your views.

Thanks in advance

Regards
CS K Degaleeswaran
 Manoj A Kulkarni August 2, 2010
Whether section 295 is applicable if advance is paid to relative of director for purchase of agriculture land by relative on behlaf of company and an agreement to the said effect is entered into by company & relative.
 Dhananjay November 16, 2010
Can a director take loan from a private ltd company which is not subsidiary? Is there any cap on how much the amount can be? Does the director need to pay any interest for that? Any limitation on term of loan?
 manivanann January 3, 2011
Whether 295 is attracted in case travel allowance advance given to Managing Director of a Company
 Tarun May 18, 2012
Loan from director to the public company comes under which head as per new Balancesheet IV Format....
 Gunjan Taunk October 8, 2011
If a Public Limited company contribute 20% in equity of pvt ltd and for the purpose of security of loan of same pvt ltd company, public limited company pledge equity shares invested in pvt ltd company for same pvt ltd company loan.

in that case sec. 295 applicable.

reply is must urgent
 manivannan October 27, 2011
Can a Non-Resident member take a loan from Private Limited? is there any restriction under companies act? Pls advise.................
 Rasbihari Sharma December 1, 2011
Whether provisions of section 372A is not applicable in case of loan to director ?
 annu goyal March 23, 2012
the directors of a pulic company hae purchased a property in their personal name.Can the company pay the initial deposit on behalf of directors or is it non-permimited.
Mukesh Agarwal August 13, 2012
your opinion on Section 295 of the companies act 1956, the detailed opinion is required for a loan proposal with us and case details are as under:-

Mr. ABC a resident Indian , is buying a property for which he requires a home loan, property would be registered in name of Mr. ABC and his wife . Mr. ABC is into the business and running a company which is a closely held public limited unlisted company i.e. M/s XYZ Limited , company is limited where majority holding is of Mr. ABC and his family.

Now we are a housing finance company wants to lend to Mr. ABC taking company M/s XYZ Limited as co borrower to the loan , Mr. ABC of M/s XYZ ltd does not have any relationship with PNBHFL i.e. neither the directors are common nor we have any cross holding s in the company.

Request your opinion on the said case will section 295 of companies act would be applicable or not .

Aditi November 5, 2012
Whether Section 295 is attracted in a situation where there is a loan agreement but no initial pay of the amount...?
Utpal Sengupta December 10, 2012
Loan to Director (Resident/non resident)- want to know all restrictions and possibilities as per company's act and as per IT Act (if possible). Thanks
sundar January 15, 2013
whether 295 (1)(e) is attracted where loan is given by A Ltd. to B Ltd. with 3 common directors? or not? pls clarify
nakash July 16, 2013
can a private company make loan to its directors for purchase of its shares, if yes, how much?
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