SECTION 295

LOANS TO DIRECTORS TO REQUIRE GOVERNMENTS APPROVAL

Guidelines for grant of loan for house building

In fulfilment of an assurance given to the Rajya Sabha on March 22, 1976, while answering supplementaries to Starred Question No.275, the Government have formulated guidelines for the grant of loans by public limited companies to their directors taking into account all the relevant factors including the bank rate of 9 per cent and the rate of interest of 11 per cent per annum charged by the financial institutions payable half-yearly for the grant long-term loans to the companies, which was laid on the Table of the House on November 12, 1976. According to these guidelines, no approval for the grant of loan would be given by the Government for the purchase of furniture. In regard to house building loan, it has been decided to prescribe a rate of interest of 10 per cent on the loans, taking into account the rate of interest charged by the Central Government from its employees and keeping in view the fact that the provision of a residential house is a welfare measure for the employees. The loan would be admissible only to the whole-time employees of a company, namely, managing directors, whole-time directors, etc. The amount of loan would not exceed a maximum of Rs. 1 lakh and would be given only where the cost of land together with the cost of construction does not exceed Rs., 2 lakhs. The borrowers would be required to furnish sufficient security including mortgage of the land and the house be constructed, for the repayment of the loan amount.

GUIDELINES FOR LOANS FOR HOUSE BUILDING

1. The plot of land should be in the name of the managing director / whole-time director or his wife with a clear title to its ownership who alone will be eligible for the grant of loan.

2. The cost of the land together with the cost of construction should not exceed a sum of Rs. 2 lakhs.

3. The maximum amount of loan should be restricted to Rs.1 lakh.

4. The borrower should execute a mortgage deed mortgaging the plot of land as also the structure to be constructed thereon as the security towards repayment of loan in addition to the personal guarantee that maybe obtained from the borrower.

5. The rate of interest charged on the loan should be 10 per cent per annum uniformly on the entire amount of loan.

6. The borrower should furnish a certificate from an approved valuer that the amount of loan has been spent for the purpose for which it was sanctioned.

7. The loan should be advanced from the surplus funds available with the company concerned and no borrowing from outside be allowed for this purpose.

8. The companies who are in arrears in the payment of the provident fund dues of its employees will not be entitled to disburse loans.

9. The loan should be recoverable within a period of 15 years from the date of disbursement of the loan or until the borrower ceases to be in the service of the company, whichever is earlier.

* STARRED QUESTION NO.245(C) AND (D) ANSWERED IN RAJYA SABHA ON 28.11.1977.

Director standing surety for outsider against whom prosecution was launched - Whether ultra vires the company

Recently a case came to the notice of the Government where a director of a public limited company stood surety for an outsider against whom prosecution was launched by the Government and a bailable warrant of arrest was issued by a court in this country. The matter has since been examined in detail and this Department is of the view that the action of the director in furnishing the company's surety to an outsider (i.e, one not connected with the company's administrative structure) is ultra vires the company. The directors of companies are hence advised that they should not expose themselves and the companies of which they are directors to the risk of standing sureties in the circumstances described for accused persons. This Department is of the view that by doing so the director may be held personally liable for having acted outside the scope of the company's authority and in a manner prejudicial to the interests of the companies concerned.

* CIRCULAR NO.37/75[F.NO.14/5/74-CL-V], DATED 17.1.1976.