Section 295 - Loans to directors:-
(1) Save as otherwise provided in sub- section (2), no
company (hereinafter in this section referred to as" the lending
company") 1[ without obtaining the previous approval of the Central
Government in that behalf shall directly or indirectly,] make any loan to, or
give any guarantee or provide any security in connection with a loan made by
any other person to, or to any other person by:-
(a) any director of the lending company or of a company
which is its holding company or any partner or relative of any such director;
1. Subs. by Act 65 of 1960, s. 102, for certain words.
(b) any firm in which any such director or relative is a
partner;
(c) any private company of which any such director is a
director or member;
(d) any body corporate at a general meeting of which not
less than twenty- five per cent. of the total voting power may be exercised or
controlled by any such director, or by two or more such directors together; or
(e) any body corporate, the Board of directors, managing
director, managing agent, secretaries and treasurers, 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.
(2) 1[ Sub- section (1) shall not apply to:-
(a) any loan made, guarantee given or security provided-
(i) by a private company unless it is a subsidiary of a
public company, or
(ii) by a banking company;
(b) any loan made-
(i) by a holding company to its subsidiary, or
(ii) by a company which is the managing agent or secretaries
and treasurers of another company to that other company;
(c) any guaranty given or security provided-
(i) by a holding company in respect of any loan made to its
subsidiary, or
(ii) by a company which is the managing agent or secretaries
and treasurers of another company in respect of any loan made to that other
company.]
(3) Where any loan made, guarantee given or security
provided by a lending company and outstanding at the commencement of this Act
could not have been made, given or provided, without the previous approval of
the Central Government, if this section had then been in force, the lending
company shall, within six months from the commencement of this Act or such
further time not exceeding six months as the Central Government may grant for
that, purpose,
either obtain the approval of the Central Government to the
trans- action or enforce the repayment of the loan made, or in connection with
which the guarantee was given or the security was provided, notwithstanding any
agreement to the contrary.
(4) Every person who is knowingly a party to any
contravention of sub- section (1) or (3), including in particular any person to
whom the loan is made or who has taken the loan in respect of which the
guarantee is given or the security is provided, shall be punishable either with
fine which may extend to five thousand rupees or with simple imprisonment for a
term which may extend to six months: Provided that where any such loan, or any
loan in connection with which any such guarantee or security has been given or
provided by the lending company, has been repaid in full, no punishment by way
of imprisonment shall be imposed under this sub- section; and where the loan
has been repaid in part, the maximum punishment which may be imposed under this
sub- section by way of imprisonment shall be proportionately reduced.
(5) All persons who are knowingly parties to any
contravention of sub- section (1) or (3) shall be liable, jointly and
severally, to the lending company for the repayment of the loan or for making
good the sum which the lending company may have been called upon the pay in virtue
of the guarantee given or the security provided by such company.
(6) No officer of the lending company or of the borrowing
body corporate shall be punishable under sub- section (4) or shall incur the
liability referred to in sub- section (5) in respect of any loan made,
guarantee given or security provided 1[ after the 1st day of April 1956 ] in
contravention of clause (d) or (e) of sub- section (1), unless at the time when
the loan was made, the guarantee was given or the security was provided by the
lending company, he knew or had express notice that that clause was being
contravened thereby.
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