Dca Caps Company Loan To Directors At 25 Times Salary

The quantum of loan, corporate guarantee or security taken by the director of a company or his relatives should not exceed 25 times the combined gross salary in the preceding six months The interest rate has been pegged at more than 4 per cent of the bank rate. This has been announced by the department of company affairs (DCA) in an official release.

The guideline, issued under sections 295 and 372A of the Companies Act, also said the loan proposal should be approved by the company's board with a certified copy of such a resolution.

"The application must be accompanied by members' specific approval, along with explanatory statement containing all the relevant details, and a certified copy of the resolution with explanatory statement," it said.

Besides, it should indicate the proposal of the company, terms and conditions, interest of directors or their relatives, if any, clearly specifying the interest rate chargeable, the schedule and terms of repayment, it added.

The application should also state the loan was not out of the borrowed funds of the company and any other major or important condition with a bearing on the loan or financial position of the company, the release said.

Further, a certified copy of the memorandum and articles of association of the applicant company, shareholding pattern of the applicant and borrower companies, common interest and controlling interest, especially stating the interest of director, along with his/her relative, should be attached, the official release said.

It is necessary to include a certified copy of the loan scheme (if any) for its employees by the company and justification for quantum of loan, guarantee of furnishing security by the company, it said.