Clarification on Loan to Public Limited Companies Under Section 295 of the Companies Act

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The Ministry of Corporate Affairs has issued clarification on loan to Public Limited Companies under Section 295 of the Companies Act. A circular issued by the Ministry in this regard says that 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 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.

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