
38 | Chapter 5
Unrecovered Loans
Another method by which insiders of a company
benet at the cost of other share holders is by
giving loans to the directors and the management
of the company which are left unrecovered. This
practice is not limited to India alone. Certain large
American companies collapsed or suered heavily
because of such loans—Worldcom and Adelphia.
From the point of view of the company regula-
tors, this is one of the main risks to be managed.
The Indian Companies Act 1956 puts in place re-
strictions in this regard. However, this practice of
giving loans to directors and their family members
or loans to shell companies created ...