Br act
kamala
(Querist) 25 November 2011
This query is : Resolved
I want to know whether provision of sec 20 of the BR act would apply in following case. An indian national is appointed as a director of the holding company of a foregn bank which has branches in India. This person has availed loan from this bank in India
kamala
(Querist) 26 November 2011
Banking Regulation Act
prabhakar singh
(Expert) 27 November 2011
Is not this one repeated??? I doubt Mr.Tom,you remember??
Shailesh Kr. Shah
(Expert) 27 November 2011
@Shri Prabhakar Singh
http://www.lawyersclubindia.com/experts/Banking-regulation-act-252721.asp
Raj Kumar Makkad
(Expert) 27 November 2011
It is repeated query but none has replied so it is not sin on the part of author to raise it again.
Raj Kumar Makkad
(Expert) 27 November 2011
Raising of similar query is justified on the ground that some of the experts are even asking to the author to tel the meaning of BR Act.
prabhakar singh
(Expert) 27 November 2011
Right!It appears they did not read the abbreviations published in the gazette of which only special lot of experts are subscribers.
R.Ramachandran
(Expert) 27 November 2011
Dear Kamala,
The provisions of Section 20(1)(b)(ii) and (iii) of the Banking Regulation Act will have no application in the fact situation, since those provisions apply in respect of any loan to a "Firm" or "A Company" in which the Director is interested and not to the Director himself.
At best the provisions of Section 20(1)(b)(i) could have applied since it entering into any commitment for granting any loan or advance to any of its directors or on behalf of any of its directors.
However, even this provision will have no application in the fact situation, since the person in question has already availed loan in his individual capacity, even before becoming a Director of the Company in question, and the Company is not contemplating granting of any loan to the Director after he had become a Director.
Section 295 of the Indian Companies Act, 1956 deals with Loans to Directors etc.
Even here, Section 295(2) carves out the following exception.
(2) Sub-section (1) shall not apply to -
(a) any loan made, guarantee given or security provided -
(i) by a private company unless it is a subsidiary of a public company, or
(ii) by a banking company ;
Since the company mentioned by you is a Banking company, even the restrictions contained in Section 295 of the Companies Act, 1956 will have no application to your fact situation.
M V Gupta
(Expert) 27 November 2011
Section 20 (1) (b) (iii) prohibits a banking company from granting any loans or advances to or on behalf of (1) any of its Directors; (2) any firm in which any of its Directors is interested as partner, Manager, employee or guarantor etc. Hence the question that arises in the facts sited by the querist is whether the Directorship of a person in the holding company of a bank would attract the above prohibition. If one has to look into the intention of the prohibition namely that a bank should not enter into any financial commitments with a Director on its borad, because it leads to undesirable lendings because of the influence the Director will have on the bank, even Directorship in the holding company may come within the mischief of the prohibition. But if one has to go by the strict wording of the section, the prohibition may not be attracted. As the matter is not beyond doubt it is better for the bank to seek the clarification from the RBI.
M/s. Y-not legal services
(Expert) 27 November 2011
