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Richa Mishra

NEW DELHI, May 27

DIRECTORS of banking companies and private companies which are not a subsidiary of a public company have something to cheer about. They can look forward to a regime in which they would not be required to conform to restrictions such as a special resolution at the general meeting for providing loans to directors.

The Companies (Amendment) Bill 2003, which outlines the situations under which loans to the directors cannot be extended, has exempted such companies from the stipulated restrictions. "This provision has been adopted from the 1997 Bill. It was understood that a banking company should be exempted from the restrictions envisaged for loans to the directors. In the proposed Bill, we have clearly stated the same," official sources said.

The Bill stipulates that a company can lend or give guarantees or provide security in connection with a loan to its managing director or director only after a special resolution is passed in a general meeting of the company for the purpose.

Further, it also states that the loan can be given to a director only for the purposes of medical treatment, purchase or construction of residential house, and children's education. However, the amount should not exceed five times the remuneration to which he is entitled in that financial year and subject to conditions as may be prescribed.

Besides, if the loan given to a managing director or any director for the said purpose is outstanding, no further loan shall be given.

The Bill also stipulates that in case a loan is proposed to be given to a relative of any director or a person having more than 3 per cent of the equity of the company or to a company in which a director or person having more than 3 per cent of the equity of the company has controlling interest by way of voting power being more than 25 per cent individually or jointly, then a resolution of a board, passed by all the directors present and prior and approval of the financial institutions which have given term loans, is required.

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