There has been confusion in certain quarters of the industry and accounting professionals as to whether the "bank rate" referred to in the Companies (Amendment) Ordinance 1998, would mean the RBI recommended bank rate or the prime lending rate of the commercial banks.

The ordinance had stated that "no loan to anybody corporate shall be made at the rate of interest lower than the prevailing bank rate of interest".

DCA secretary T S Krishnamurthy felt that there was no ambiguity about the definition of bank rate of interest referred to in the ordinance. "I do not see why there should be any confusion on the usage of the term. The definition of the bank rate is every clear in the RBI guidelines."

He added that the Law Ministry too had concurred with the DCA on the reference.

Thegovernment is, however, unlikely to remove the stipulation despite opposition from various quarters.

The clarification would be incorporated in the Companies Amendment Bill which replaces the ordinance promulgated on October 31. The bill would be introduced the winter session in Parliament.

Incidently, there is no stipulation on lending rates in the Companies Bill, 1997, which is currently open in Parliament. The clause had been inserted in the ordinance in order to prevent bleeding of the investing company in the process of transferring funds from one company to subsidiaries.

The confusion over the definition "bank rate of interest" had been raised by industry chambers such as Associated Chambers of Commerce and Industry of India (Assocham) and Federation of Indian Chambers of Commerce and Industry (Ficci) and the Institute of Chartered Accountants of India (ICAI). The three bodies have also opposed the inclusion of the clause as a condition to extending loans to other corporate bodies.

The ICAI feltthat the provision was not in line with the think of the expert group on company law. "Secondly, the term `bank rate of interest' has not been defined."

Urging the government to withdraw the stipulation, Ficci stated "the stipulation that no loan to any body corporate can be made at the rate of interest lower than the prevailing bank rate is really a blanket one as even the financial institutions and government have no powers to waive it. This would be contradictory to a lot of restructuring loans where these very same institutions require promoters to advance funds into companies especially those in the revival mode, either free of interest or at a relatively low rate of interest."