Inter company loan
This query is : Resolved
14 September 2012
If a Public Limited company has give a loan to a pvt ltd company with common directors. What is the legal impact ?
14 September 2012
A priavte company can not accept deposit from public.
Even it cannot accept loan from a public company even if there are common directors.
Even it cannot accept loan from a public company even if there are common directors.
14 September 2012
The Companies Act has not restricted the
acceptance of loans, secured or unsecured, from directors, their friends or
relatives. The only restriction is that it cannot accept deposits or loans from a
public at a large by issue of prospectus or any similar document. So, if it is not
restricted, it means that it is allowed.
acceptance of loans, secured or unsecured, from directors, their friends or
relatives. The only restriction is that it cannot accept deposits or loans from a
public at a large by issue of prospectus or any similar document. So, if it is not
restricted, it means that it is allowed.
14 September 2012
The Private company can accept from directors, friends and their relatives but it can never accept a loan from company.
Accordingly, it can not accept loan from public/prvate limited company
Accordingly, it can not accept loan from public/prvate limited company
14 September 2012
As per My Perception, Inter Corporate Loans are Allowed, That Doesn't Fall Under Section 58A of Companies act.If Have Same Director.
14 September 2012
Section 3(1)(iii-d)of companies act restricts private company from any invitation or acceptance of deposits from persons other than its members, directors or their relatives.
14 September 2012
Section 3 of The Companies Act, 1956 restrains a Pvt. Ltd co. from accepting deposits from any persons other than shareholders, directors and their relatives. However, the definition of ‘deposits’ u/s. 58A read with Rule 2 of The Companies (Acceptance of Deposits Rule), 1975 specifically excludes inter-corporate loans.
372A talks about applicability in case of Pvt Ltd which is a subsidiary of Public Ltd. Hence if the Holding company is not Public Ltd, then there is no scope for Section 372A to become operative
Section 372A(8) very clearly elucidates that a Pvt Ltd company is not covered by Section 372A.
Based on the above two points, it can be concluded that a Pvt Ltd co. is not statutorily barred from indulging in inter-corporate transactions
Procedures: Generally sister companies have common directors. Hence provisions relating to compliance in that regard need to be followed. Section 300(1) of The Companies Act, 1956 mandates that in case of directors who are interested in case of a particular contract/arrangement in which he is directly/indirectly interested, then he is not eligible to participate in the discussion or vote in that regards in BOD meetings. However, Section 300(2) exempts a Pvt Ltd co which is neither a subsidiary or Holding company of a Public Ltd co from Section 300(1). Hence it does not apply in your case. By virtue of Section 295(1)(c), a company cannot lend to a Pvt ltd co if there are common directors or if the director of the lending company is member of that pvt ltd co. However, according to Section 295(2)(a)(i), Section 295(1) is only applicable to pvt ltd co which is a subsidiary of a Public Ltd co. According to Section 299(6), only if the directors’ shareholding in the borrowing company exceeds 2% of the paid up capital, then the directors should disclose their interest according to the prescribed procedure in Section 299. No distinction has been made in Section 299 between Public and Pvt Ltd Co and hence it can be concluded that Section 299 would be operational in your case. Accordingly common/ interested directors need to give a general notice to the BOD that they are interested/ concerned in a particular contract or arrangement. This would be sufficient disclosure. Such notice, however, would expire at the end of the Financial Year and would need to be renewed, one FY at a time, in the last month of the FY in which it is due to expire. Additionally, no such general notice or renewal would be of effect and consequence if it is not given at a BOD meeting or if the concerned director does not take reasonable steps to have it brought up and read at the BOD meeting. Contravention of Section 299 is punishable with a fine of Rs. 50,000. Additionally, Section, 299(5) also states that if there are other laws which restrict such contracts/arrangements, then those laws would have an over-riding effect. Particulars of such contract /arrangement needs to be kept according in the manner prescribed u/s. 301 It can be derived from Section 299, that a BOD resolution would suffice. Additionally, according to Section 292, BOD resolution is needed to make loans and also to take loans.
372A talks about applicability in case of Pvt Ltd which is a subsidiary of Public Ltd. Hence if the Holding company is not Public Ltd, then there is no scope for Section 372A to become operative
Section 372A(8) very clearly elucidates that a Pvt Ltd company is not covered by Section 372A.
Based on the above two points, it can be concluded that a Pvt Ltd co. is not statutorily barred from indulging in inter-corporate transactions
Procedures: Generally sister companies have common directors. Hence provisions relating to compliance in that regard need to be followed. Section 300(1) of The Companies Act, 1956 mandates that in case of directors who are interested in case of a particular contract/arrangement in which he is directly/indirectly interested, then he is not eligible to participate in the discussion or vote in that regards in BOD meetings. However, Section 300(2) exempts a Pvt Ltd co which is neither a subsidiary or Holding company of a Public Ltd co from Section 300(1). Hence it does not apply in your case. By virtue of Section 295(1)(c), a company cannot lend to a Pvt ltd co if there are common directors or if the director of the lending company is member of that pvt ltd co. However, according to Section 295(2)(a)(i), Section 295(1) is only applicable to pvt ltd co which is a subsidiary of a Public Ltd co. According to Section 299(6), only if the directors’ shareholding in the borrowing company exceeds 2% of the paid up capital, then the directors should disclose their interest according to the prescribed procedure in Section 299. No distinction has been made in Section 299 between Public and Pvt Ltd Co and hence it can be concluded that Section 299 would be operational in your case. Accordingly common/ interested directors need to give a general notice to the BOD that they are interested/ concerned in a particular contract or arrangement. This would be sufficient disclosure. Such notice, however, would expire at the end of the Financial Year and would need to be renewed, one FY at a time, in the last month of the FY in which it is due to expire. Additionally, no such general notice or renewal would be of effect and consequence if it is not given at a BOD meeting or if the concerned director does not take reasonable steps to have it brought up and read at the BOD meeting. Contravention of Section 299 is punishable with a fine of Rs. 50,000. Additionally, Section, 299(5) also states that if there are other laws which restrict such contracts/arrangements, then those laws would have an over-riding effect. Particulars of such contract /arrangement needs to be kept according in the manner prescribed u/s. 301 It can be derived from Section 299, that a BOD resolution would suffice. Additionally, according to Section 292, BOD resolution is needed to make loans and also to take loans.
14 September 2012
Dear Nalin,
Inter Corporates Loan are Allowed.
Even You Need Not to Take Care of Section 372A Also in Case of Pvt Companies.
Inter Corporates Loan are Allowed.
Even You Need Not to Take Care of Section 372A Also in Case of Pvt Companies.
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