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No company, without
obtaining the prior approval of the Central Government in this behalf, can
make any loan to, or give any guarantee or provide any security in
connection with a loan made by any other person, to or to any other person
The above provision shall not apply to guarantee given or security provided by a holding company in respect of a loan made to its subsidiary.
Every person who is knowingly a party to any contravention of the aforesaid provisions, including in particular any person to whom the loan is made or who has taken the loan in respect of which the guarantee is given or the security is provided, shall be punishable either with fine which may extend to five thousand rupees or with simple imprisonment for a term which may extend to six months:
However, where any such loan, or any loan in connection with which any such guarantee or security has been given or provided by the lending company, has been repaid in full, no punishment by way of imprisonment shall be imposed.
Where the loan has been re-paid in part, the maximum punishment which may be imposed by way of imprisonment shall be proportionately reduced.
All persons who are knowingly parties to any contravention of the afoesaid provisions shall be liable jointly and severally, to the lending company for the repayment of the loan or for making good the sum which the lending company may have been called upon to pay in virtue of the guarantee given or the security provided by such company.
The above provisions will also apply to any transaction represented by a book debt which was from its inception in the nature of a loan or advance.
Disclosure of Director's Interest
Boards sanction to be required for certain contracts in which particular directors are interested
Except with the consent of the Board of directors, a director of the company or his relative, a firm in which such a director or relative is a partner, any other partner in such a firm, or a private company of which the director is a member or director, shall not enter into any contract with the company
However, the above provision will not affect:-
Every consent of the Board under these provisions must be by a resolution passed at a meeting of the Board and either before the contract was entered into, or within 3 months of the date on which it was entered into.
Where such consent is not accorded to the contract, the contract shall be voidable at the option of the Board.
Procedure, etc, where director interested Disclosure of interests by director
Every director of a company who is in any way, whether directly or indirectly concerned or interested in a contract or arrangement, or proposed contract or arrangement entered into or to be entered into, by or on behalf of the company, shall disclose the nature of his concern or interest at a meeting of the Board of directors.
In the case of a proposed contract or arrangement, the disclosure required to be made by a director shall be made at the meeting of the Board at which the question of entering into the contract or arrangement is first taken into consideration, or if the director was not, at the date of that meeting, concerned or interested in the proposed contract or arrangement, at the first meeting of the Board held after he comes so concerned or interested.
In the case of any other contract or arrangement, the required disclosure shall be made at the first meeting of the Board held after the director becomes concerned or interested in the contract or arrangement.
A general notice given to the Board by a director, to the effect that he is a director or a member of a specified body corporate or is a member of a specified firm and is to be regarded as concerned or interested in any contract or arrangement which may, after the date of the notice, be entered into with that body corporate or firm, shall be deemed to be a sufficient disclosure of concern or interest in relation to any contract or arrangement so made.
Any such general notice shall expire at the end of the financial year in which it is give, but may be renewed for further periods of one financial year at a time, by a fresh notice given in the last month of the financial year in which it would otherwise expire (Form 24 AA).
No such general notice, and no renewal thereof, shall be of effect unless either it is given at a meeting of the Board, or the director concerned takes reasonable steps to secure that it is brought up and read at the first meeting of the Board after it is given.
Every director who fails to comply with the aforesaid provisions shall be punishable with fine which may extend to five thousand rupees.
Nothing in these provisions shall be taken to prejudice or adversely affect the operation of any rule of law restricting a director of a company from having any concern or interest in any contracts or arrangements with the company.
Nothing in these provisions shall apply to any contract or arrangement entered into or to be entered into between two companies where any of the directors of one company or two or more of them together hold not more than 2 % of the paid up capital in the other company.
Interested director not to participate or vote in Boards proceedings
No director of a company shall, as a director, take any part in the discussion of, or vote on, any contract or arrangement entered into, or to be entered into, by or on behalf of the company, if he is in any way, whether directly or indirectly, concerned or interested in the contract or arrangement.
Nor shall his presence count for the purpose of forming a quorum at the time of any such discussion or vote and if he does vote, his vote shall be void.
The above provision shall not apply to :-
Every director who knowingly contravenes the provisions of this section shall be punishable with fine which may extend to five thousand rupees.
Registrar of contracts, companies and firms in which directors are interested
Every company shall keep a register in which all contracts or arrangements in which directors are interested are entered into giving detailed information on
The register must also specify in relation to each director of the company, the names of the bodies corporate and firms of which notice has been given by him wherein he has interest.
The above provisions do not apply to :-
The register aforesaid shall be kept at the registered office of the company, and it shall be open to inspection at such office, and extracts may be taken therefrom and copies thereof may, be required, by any member of the company to the same extent, in the same manner, and on payment of the same fee, as in the case of the register of members of the company.
Disclosure to members of directors interest in contract appointing manager, managing director
Where a company :-
Where a company enters into a contract for the appointment of a managing director of the company, or varies any such contract which is already in existence, the company shall send an abstract of the terms of the contract or variation to every member of the company within within twenty-one days from such date and if any other director of the company is concerned or interested in the contract or variation, a memorandum clearly specifying the nature of the concern or interest of such other director in the contract or variation shall also be sent to every member of the company with the abstract aforesaid.
Where a director becomes concerned or interested as aforesaid in any such contract as is referred to above after it is made, the abstract and the memorandum, if any, referred to above shall be sent to every member of the company within twenty-one days from the date on which the director becomes so concerned or interested.
If default is made in complying with the foregoing provisions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one thousand rupees.
All contracts entered into by a company for the appointment of a manager, or managing director, shall be kept at the registered office of the company; and shall be open to the inspection of any member of the company at such office; and extracts may be taken therefrom and copies thereof may be required by any such member, to the same extent, in the same manner and on payment of the same fee, as in the case of the registrar of members of the company.
The provisions of this section shall apply in relation to any resolution of the Board of directors of a company appointing a manager or a managing or whole-time director, or varying and previous contract or resolution of the company relating to the appointment of a manager or a managing or whole time director, as they apply in relation to any contract for the like purpose.
Register of DirectorsEvery company shall keep at its registered office a register of its directors, managing director, manager and secretary, containing with respect to each of them the following particulars, that is to say:
If default is made in complying, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees for every day during which the default continues.
Inspection of the register
The register kept shall be open to the inspection of any member of the company without charge and of any other person on payment of one rupee for each inspection during business hours subject to such reasonable restrictions as the company may by its articles or in general meeting impost, so that not less than two hours in each day are allowed for inspection.
If any inspection is refused :-
Every director, managing director, manager or secretary of any company, who is appointed to or relinquishes the office of director, managing director, manager of any other body corporate must within 20 days of his appointment or relinquishment, disclose to the company aforesaid the particulars relating to the office in the other body corporate and if he fails to do so, he shall be punishable with fine which may extend to five hundred rupees.
Register of Director's shareholdings
Every company shall keep a register showing, as respects each director of the company, the number, description and amount of any shares in, or debentures, of the company or any other body corporate, being the company's subsidiary or holding company, or a subsidiary of the company's holding company, which are held by him or in trust for him, or of which he has any right to become the holder whether on payment or not.
Where any shares or debentures have to be recorded in the said register or to be omitted therefrom, in relation to any director, by reason of a transaction entered into and while he is a director, the register shall also show the date of, and the price or other consideration for, the transaction.
However, where there is an interval between the agreement for any such transaction and the completion thereof, the date so shown shall be that of the agreement.
The nature and extent of any interest or right in or over any shares or debentures recorded in relation to a director in the said register shall, if he so requires, be indicated in the register.
The said register shall, subject to the provisions of this section, be kept at the registered office of the company, and shall be open to inspection during business hours (subject to such reasonable restrictions as the company may, by its articles or in general meeting, impost so that not less than two hours in each day are allowed for inspection) as follows:-
The Central Government or the Registrar may, at any time, require a copy of the said register, or any part thereof.
The said register shall also be produced at the commencement of every annual general meeting of the company and shall remain open and accessible during the continuance of the meeting to any person having the right to attend the meeting.
Duty of directors and persons deemed to be directors to make disclosure of shareholdings
Every director of a company, must give notice to the company of such matters relating to himself as may be necessary for the purpose of enabling the company to company with the aforesaid provisions.
Any such notice shall be given in writing, and if it is not given at a meeting of the Board, the person giving the notice shall take all reasonable steps to secure that it is brought up and read at the meeting of the Board next after it is given.
Any person who fails to comply with the above provisions shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to five thousand rupees, or with both
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ISBN No: 978-81-928510-0-6