INSUBCONTINENT EXCLUSIVE:
NEW DELHI: The government has lifted the restrictions that barred acompany from lending or providing security and guarantee to a private
enterprise where the former has a common director, or where its director holds a stake.
An official told ET that the corporate affairs
ministry has issued a notification, formalising amendments to the Companies Act that were passed by Parliament last year.
The curbs had been
put in place to check fraudulent transactions by promoters through shell companies.
However, they were found to be thwarting legitimate
promoters who were trying to fund their own companies
The amendment is aimed at helping promoters fund genuine businesses, even as the ministry is dealing separately on the issue of shell
not advance any loan, provide a guarantee or security to any of its own directors or of its holding company, any partner or relative of a
director or any firm in which a director or relative is a partner.
Subsequent to the changes, a company can, through a special resolution,
advance loan, give a guarantee or provide security to a private company which is linked to its director as long as it is for the principal
business activity of the company
The relaxation also covers any corporate body where one or more of its directors can exercise at least 25% voting power
These include public sector companies and companies registered overseas.
The ministry has, however, stated that all such loans must be
utilised by the borrowing company for principal business activities only
The Companies Amendment Bill 2017 was passed by the Lok Sabha in July 2017 and the Rajya Sabha in December
The latest amendments issued by the ministry have come into effect from May 7, 2018, the official said.
The move is a big boost for
promoters as it has made lending hassle-free
