Clarification
under Section 372A (3) of the Companies Act, 1956
General Circular
No. 06/2013, File No. 5 /03/2013-CL-V, Dated 14.03.2013
All Regional
Directors,
All Registrar of
Companies,
All
Stakeholders.
It is observed
from the Budget 2013-14 authorizes Union Govt to raise Rs. 50,000 crores (Tax
Free Bonds). These bonds carry a lower rate of interest, currently in the range
of 6.75% to 7.50% which is tax free under Section 10(15)(iv)(h) of the Income
Tax Act, 1961. Such bonds were also provided for in Budget 2012-13, but the
response had been poor due to restrictions under Section 372A(3) of the
Companies Act, 1956.
2. Ministry of
Finance had drawn the attention of this Ministry to Section 372A(3) of the
Companies Act with a view to effectively implement the announcement made in the
Budget. Section 372A(3) of the Act interalia provides that “No loan to any body corporate shall be made at a rate of interest
lower than the prevailing bank rate, being standard rate made public under section
49 of the Reserve Bank of India Act, 1934 (2 of 1934)”.
3. It is hereby
clarified that in cases where the effective yield (effective rate of return) on
tax free bonds is greater than the yield on prevailing bank rate, there is no
violation of Section 372A(3) of Companies Act, 1956.
4. This circular
is effective from the date of issue.
5.
This issues with the approval of Hon'ble Corporate Affairs Minister.
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