Receiving interest free unsecured loan

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Muralidharan (Querist)
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23 March 2011 23rd March 2011

Dear Members

Kindly inform whether a closely held Public Limited Company can avail Interest free unsecured loan from a Private Limited Company. Please note that the lender (private company) happens to be the shareholder (holding company) of the public limited company (borrower)

with regards

R. Muralidharan

Rasesh

Rasesh (Expert)
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23 March 2011 In my view, the question needs to be looked from the reverse position i.e. whether the Private Limited Company (A) which is the holding Company of a Public Limited Company (B) give a interest fee ICD.

While the Companies Act does not seem to prohibit this (sec 372A not applicable, ICD is exempt deposit), I believe the
a) auditors of the private limited company may highlight in the CARO that loans given to subsidiary are prejudicial to the interst of the members of the company, and
b) Deemed Dividend - Section 2(22)(e) of Income Tax Act, might come into play.