Money‑lending and financing transactions by erstwhile banks taken up and carried on after nationalisation. - Companies Law - Circular : No. 14/76,

Circular : No. 14/76, dated 25 ‑ 6 ‑ 1976. Subject:- Money ‑ lending and financing transactions by erstwhile banks taken up and carried on after nationalisation - Whether covered by exemption under clause (iii) of sub ‑ section (2) In the case of an erstwhile banking company whose banking business was nationalised, it was found that the company had utilised the compensation received in advancing substantial funds to other companies of the same group on the authority of a special resolution passed subsequent to the nationalisation. The question whether these advances were in excess of the limits prescribed in section 370 was examined. It was stated that the company had been established primarily to carry on the business of banking in all its branches. Opinion of counsel was also produced to support the stand that restriction of section 370 will not apply to a company established with the object of financing industrial enterprises. It was argued that the company was established with the object, inter alia, of financing industrial enterprises and that it could make loans in furtherance of that object or for any other purpose without falling within the said restrictions. On a careful examination of the case, it has been decided that the company was set up not with the primary object of financing industries but to set up and carry on the business of banking. Even though the power to finance industries was incidental to the main business of banking, the company will not be covered by the exemption under section 370(2). This is being brought to the notice of all officers so as to ensure that all such companies comply with the provisions of section 370 in respect of their money‑lending and financing transactions taken up and carried on after nationalisation of their banking business.