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DCA tightens norms on loans to directors

Our Bureau

The quantum of loan, along with other loans taken if any, should not exceed 25 times of the gross salary drawn in the six months before the application.

NEW DELHI, Feb. 18

THE Department of Company Affairs (DCA) would be guided by more stringent norms in granting approvals to applications from companies for furnishing security to the directors of the companies or their relations.

The rate of interest on the loans must not be less than the four per cent above the prevailing `bank rate'. The quantum of loan, along with other loans taken if any, should not exceed 25 times of the gross salary drawn in the six months before the application. Besides, no guarantee commission will be allowed in respect of the proposals.

In addition, the application will clearly specify the rate of interest chargeable, the schedule and terms of repayment, stating that the loan is not being made out of the company's borrowed funds and any other major or important condition with a bearing on the loan or financial position of the company.

As a measure to protect investors' interest, the application is required to be accompanied by a declaration that the company has not defaulted in repaying the investors as and when their deposit amounts were due.

It also requires a certificate from the statutory auditors or a company secretary in whole-time practice, stating that the proposal is in conformity with the provisions of Section 372 A of the Companies Act.

It should also specify that the company has not defaulted in the repayment of any fixed deposits accepted by it under Section 58 A of the Act or part thereof or interest thereon, payment of dividend, redemption and repayment of debenture and timely payment of interest thereon, redemption of preference shares and regularity of the company in filing all forms and returns as per the provisions of the Act.

Besides, a no-objection certificate or prior approval of public financial institutions or banks in the case of any term loan subsisting is required.

The other requirements include list of directors of the board or both the applicant and borrower companies wherever applicable and disclosing inter-se interest, if any, financial position of net worth of both the companies for three years along with copies of annual reports.

Further, a certified copy of draft loan agreement, the name and particulars of the guarantor with their consent if the loan is backed by any guarantee, details of the loan given, corporate guarantee given or security provided to any company, person, firm and so with proof of compliance of Section 372A, wherever applicable, is required.

Details of the loan given, corporate guarantee given or security provided to any company, person, firm under Section 295, with a declaration to the effect that funds proposed to be loaned are not required for its working capital requirements at least for a year, are also required.

The other requirements include a certified copy of the loan scheme for the employees of the company, if any, and justification for quantum of loan and guarantee for furnishing security by the company, according to an official release.

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