Dear all

kindly go through the news item in respect of exemption to private companies. As per draft notification that not all private companies to gain from this proposal.

Best regards

Private companies to be allowed to extend loans to directors

K. R. SRIVATS

Not all private companies to gain from this proposal

NEW DELHI, JUNE 25:

Private companies will get to extend loans to their directors if a new proposal of the company affairs ministry gets notified.

This proposal forms part of several realistic measures taken by the Corporate Affairs Ministry (MCA) to improve the working environment for private companies.

This move is significant as it would reverse a position in the new company law that barred private companies from extending loans to directors or any other person in whom the director is interested.

The breather for private companies with regard to loans to directors will however not be available to all such companies.

Only those private companies with no or low public interest will benefit from the proposed move.

All private companies with borrowings from banks over a specified limit will not be eligible to extend loans to their directors.

"The intention is not to provide this dispensation to private companies where significant exposure to banks/public funding exists", Aseem Chawla, Partner, MPC Legal, a law firm, told Business Line.

However, Chawla suggested that all private companies irrespective of their borrowings or shareholdings should be allowed to extend loans to directors.

Yogesh Sharma, Partner, Grant Thornton India LLP said that the new MCA measures are welcome as it would address the practical difficulties faced by many small and medium sized private companies in complying with certain requirements.

It is worth citing that none of the exemptions and relaxations proposed by corporate affairs ministry would hamper the interest of the investors or public at large as they cover only private companies with no or low public interest, he said.

srivats.kr@thehindu.co.in

(This article was published on June 25, 2014)

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