Approval of Central Government under section 295 not required for purpose of grant of house building loan to managing directors/whole-time directors - Companies Law - Circular : No. 3/37/93-CL-V,

Circular : No. 3/37/93-CL-V, dated 20-8-1993. Subject:- Approval of Central Government under section 295 not required for purpose of grant of house building loan to managing directors/whole-time directors Section 295 of the Companies Act, 1956, prohibits a public company and a private company which is a subsidiary of a public company from making a loan to its directors, etc., without prior approval of the Central Government. This Department has formulated guidelines for the grant of house building loans by such companies to their managing director/whole-time directors. The existing guidelines envisage grant of house building loan up to a ceiling of Rs. 5 lakhs on payment of interest at 10% per annum. 2. Various associations of trade and industry have been making requests/representations for increasing the ceiling of house building loans and the companies have also been making applications for grant of house building loans of Rs. 10 lakhs or more at the reduced rate of interest, as per schemes applicable to the other officers of the company. In view of the increasing cost of land, construction and also the upward revision in the remuneration of managerial personnel of companies, the current ceiling on house building loan of Rs. 5 lakhs has become outdated and needs revision. 3. The Government has, therefore, decided to allow companies to make the house building loans to their managing director/whole-time directors without obtaining prior approval of the Central Government under section 295 of the Companies Act, 1956, on such terms and conditions as are applicable to its officers/employees. The approval of the Central Government will, however, be necessary in the case of companies having no such scheme or where the house building loan proposed to be made is not covered by the terms and conditions as are applicable to its officers/employees.