May 31, 2011
The Ministry of Corporate Affairs has noticed that 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 other 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. MCA has now issued a circular bearing no. 24/2011 requesting the Companies to note that when the beneficiary of the loan/guarantee/security is a public limited company, approval of Central Government should only be sought if the provisions of sub-section (d) or (e) of Section 295 of the Companies Act, 1956 are attracted. The application should also clearly bring out the facts in this regard.