Applicability of section 295 of co. act on lending nbfc

Provision of Sec 295(1):

Sec 295 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;

(b) any loan made by a holding company to its subsidiary company.

(c) any guarantee given or security provided by a holding company in respect of any loan made to its subsidiary company.

Putting in a simple way:-

What are the Lending companies :-

1. Public Company

2. Private company, which is a subsidiary of Public company.

What are NOT the lending companies:-

1. Private company

2. Banking company

3. Holding ------> Subsidiary [ Loan or Guarantee ]

Coming to NBFC:

There are 3 types of NBFC's :-

(i) NBFC's accepting public deposit (NBFCs-D)

(ii) NBFC's not accepting/holding public deposit (NBFCs-ND).

(iii) Residuary Non-Banking Companies(RNBCs)

Hence, check the Memorandum whether the NBFC is a Public company or not.

If so, The provisions of Sec 295 applies.

Please correct me if i am wrong.

Dear Varun

Thanks so much for your prompt response and clarifying the section in simple way. 

By referring to various professional group I already came to conclusion that if NBFC is private co. then it will be exempted as per 295(2). But any MCA/RBI Circular will be highly appreciated giving clarification about this point as I have to advise about the same to my client showing him relevant circular or notification.

Waiting for Your Reply !!

Thanks Again !!

Dear Shefali Tripathi,

As per my knowledge, Circulars or Notifications are issues only if there is any ambiguity in law or there is a need for any ammendment.

The law itself clearly exempts private company u/s 295(1).

Hence, there is no requirment of any circular or notifications. And i don't think so, you may find the same in MCA portal.

You can make your client to refer the relavent provisions of the Bare act.

Well advised

It is seen that query was posted 3 years back. Section 295 is no longer there. It has been replaced by Section 185 of Companies Act, 2013.

@ Datta K,

Thanks for the info. But do you feel that the replies by the members were wrong according to the situation prevailing 3 years back? Better be sensible analyst than an unmindful and biased critic.