This refers to the report “Company law roadblock hits tax-free bonds” (December 27). The article fears that big corporate houses are wary of investing huge sums in tax-free bonds offered by various (state-owned) infrastructure companies owing to the possible breach of provisions of Section 372A of the Companies Act, 1956. However, there is some misapprehension in interpreting the provisions of the Section as far as the applicability of the minimum benchmark limit for lending rates is concerned. Sub-section (1) of Section 372A deals with three kinds of investments that may possibly be made by a company: (a) giving loans; (b) giving guarantee or providing security; and (c) investing by way of subscription, purchase or otherwise in securities. Currently, subscription to tax-free infrastructure bonds cannot be regarded as a “loan” granted by a company, nor as a guarantee or security provided. It would, unarguably, be an investment by the company in securities. The Sub-section only places a bar in respect of “loans” granted by companies. The conclusion drawn that the provisions of Section 372A have handicapped the investment to be made in tax-free infrastructure bonds, thus, needs reconsideration.
Pooja Agrawal Mumbai
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