MCA Updates: Clarification u/s 372A(3) of the Companies Act, 1956

The Ministry of Corporate Affairs vide its General Circular No. 06/2013 dated 14.03.2013, has issued a clarification with respect to Section 372A (3) of the Companies Act, 1956 that prohibits lending of money to Bodies Corporate at a rate lower than the prevailing bank rate. 

The Union Budget 2013-14 allows the Central Government to raise Rs. 50,000 Crores in the form of Tax Free Bonds which carry a lower rate of interest (presently 6.75% to 7.5%) which is tax free under Sections 10(15) (iv)(h) of the Income Tax, 1961. Such a provision was also made in Budget 2012-13 but it received poor acceptance owing to restrictions posed by Section 372A (3) of the Companies Act, 1956. The Ministry of Finance therefore drew the attention of MCA to the said section in order to remove bottlenecks in effective implementation of this provision.

Keeping the current scenario in mind, MCA has clarified that the said Section will not be considered contravened if the effective yield or rate of return on tax free bonds is greater than the yield on prevailing bank rate. 

It is noteworthy that the Companies Bill 2012 has already taken care of the issue as the provision therein with reference to Loan and investment by company mentions:- 
186 (7) No loan shall be given under this section at a rate of interest lower than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan.



Cancellation and Deactivation of DIN - Amendment to the DIN (Amendment) Rules, 2006 

The Ministry of Corporate Affairs vide its Notification dated 15.03.2013 has notified an amendment to the Directors Identification Number (Amendment) Rules, 2006 which shall come into force on the date of its publication in the Official Gazette. Through this amendment the MCA seeks to incorporate an additional rule, which caters to Cancellation and Deactivation of DIN, in continuation to the seven rules which currently form the part of the DIN Rules, 2006. 

As per the Eighth Rule, any person can now make an application for Cancellation or Deactivation of DIN which shall be assessed by the Central Government or Regional Director (Northern Region), Noida or any other officer authorized by the Regional Director and shall be executed after proper verification of details and duly giving an opportunity to be heard to the concerned individual. 


An application for Cancellation or Deactivation of DIN can be moved if any of the following situations exist:

  1. The DIN is found to be duplicate; 
  2. The DIN was obtained by wrongful manner* or fraudulent means**; 
  3. The concerned individual has died; 
  4. The concerned individual has been declared a lunatic by the competent Court; or 
  5. The concerned individual has been adjudicated an insolvent 
An adequate explanation for the terms “wrongful manner” and “fraudulent means” has been given separately as follows: 
* Wrongful manner: The term means if the DIN has been obtained without legally established documents.

** Fraudulent manner: The term means if the DIN has been obtained unlawfully to deceive any other person or any authority including the Central Government.

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By:
Ms. Deepali A Mendiratta
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