Section 295 of the Companies Act.

Loan to Director, relative, partner.
The Companies Act, 1956 does not restrict Private Companies and Banking Companies to give loans or guarantee or security to its directors. The same view is taken towards the loans or guarantee or security made by a holding Company to its subsidiary Company.
According to Section 295 of the Companies Act, 1956, a Public Limited Company or its subsidiary should obtain prior approval of the Central Government for:
			Lending;
			Giving guarantee; or
			Providing security to
	i.	Any Director of the Company;
	ii.	Any Director of its holding Company;
	iii.	Any partner or relative of a Director;
	iv.	Any firm-in which the Director/relative is a partner;
	v.	Any Private Company- in which such Director is a Director/ member;
	vi.	Any Body Corporate- in which any (such) Director (or two or more directors together) controls 25% of voting power.
	vii.	Any Body Corporate- The Board of Directors, Managing Director or Manager of that body Corporate is accustomed to act on the directions of the Board/any Director of the lending Company.
Important points:
1.   Section 295(1) is not applicable to a Government Company provided such Company has obtained prior approval of the administrative ministry/Department of the concerned State Government.
2.   Application for giving loan, providing security or guarantee connection with a loan shall be made to the Central Government in Form 24AB.(Companies (Central Government’s) General Rules and Forms, 1956)
3.   As the offence under Section 295 is punishable with fine or imprisonment, it is compoundable but with the permission of the Court [Section 621A(2)]
4.   Giving loan by a Company attracts the provisions of section 292. Therefore, Approval of Board by means of a resolution is essential for the loans/guarantee/security given under Section 295.
5.   Applicability of Section 372A is accompanying with Section 295 for the loans given to the persons viz. v, vi, and vii of the above given list.
6.   The Central Government has permitted the Companies granting housing loans to their Managing Director and whole-time directors without the approval of the Central Government, provided there is an existing house loan scheme for employees.
7.   This Section is not applicable for loans given to members and employees of the Company.
8.   Contravention to Section 295 leads to the vacation of the office of the Director under Section 283.
9.   This Section not come under the purview of Section 301 and hence need not be entered in the register, provided it does not attract the provisions of Section 299.
Case study
There is no prohibition against a banking Company lending money to concerns of which a Director of the bank is  also a Director
Re. Bank of  Commerce Limited(1947)
A Company selling one of its flat to one of its directors on receiving half the price in cash and agreeing to accept the balance in installments does not amount to giving loan to the Director.
Fridie Ardeshir Mehta v. Union of India (1991)