09 March 2009
Is there any kind of restrictions for a Private company to accept or grant inter company loans. What if there is director shareholding in both lending and borrowing company
10 March 2009
INTER-CORPORATE LOANS AND INVESTMENTS (SECTION 372A)
Overall ceiling limits: No company shall directly or indirectly make (i) make any loan to any other body corporate; (ii) give any guarantee or provide security in connection with a loan made by any other person to, or to any other person by, any body corporate; and (iii) acquire by way of subscription, purchase or otherwise the securities of any other body corporate, exceeding 60% of its paid-up share capital and free reserves or 100% of its free-reserves whichever is more. [sub-section (1)] note: • “Loan” includes debentures, or any deposit of money made by one company with another company, not being a banking company. • “Free Reserves” means those reserves which, as per latest audited balance sheet of the company, are free for distribution as dividend and shall include balance to the credit of the securities premium account but shall not include share application money. • Loans, Investments and guarantees in excess of prescribed limits: Where the aggregate of the loans and investments so far made, the amounts for which guarantee or security so far provided to or in all other bodies corporate, along with the investment, loan, guarantee or security proposed to be made or given by the Board, exceeds the aforesaid limits, no investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorised by a special resolution passed in a general meeting.
However, the Board may give guarantee, without being previously authorised by a special resolution if: 1. a resolution is passed in the meeting of the board authorising to give guarantee in accordance with the provisions of this section; 2. there exists exceptional circumstances which prevent the company from obtaining previous authorisation by a special resolution passed in a general meeting for giving a guarantee; 3. the resolution of the Board under (1) as above is confirmed within twelve months, in a general meeting of the company or the annual general meeting held immediately after passing of the Board resolution, whichever is earlier.
Note: Matter to be specified in special resolution: The notice of special resolution shall indicate clearly the specific limits, the particulars of the body corporate in which the investment is proposed to be made or loan or security or guarantee to be given, the purpose of the investment, loan or security or guarantee, specific sources of funding and such other details. Directors – Powers, Managerial Remuneration in context of section 372A 1 No loan or investment shall be made or guarantee or security given by the company in pursuance of sub-section (1) of Section 372A unless the resolution sanctioning it is passed at a meeting of the Board with the consent of all the directors present at the meeting and the prior approval of the public financial institution referred to in Section 4A where any term loan is subsisting, is obtained. 2 The prior approval of a public financial institution shall not be required where the aggregate of the loans and investments so far made, the amounts for which guarantee or security so far provided to or in all other bodies corporate, along with the investments, loans guarantee or security proposed to be made or given does not exceed the limit of sixty per cent specified in sub-section (1) as referred above, if there is no default in repayment of loan instalment or payment of interest thereon as per the terms and conditions of such loan to the public financial institution. [subsection (2)].
3 Rate of interest: No loan to any body corporate shall be made at a rate of interest lower than the prevailing bank rate, being the standard rate made public under Section 49 of the Reserve Bank of India Act, 1934. [sub-section (3)].
4 Penalty Default under Section 58A: No company which has defaulted in complying with the provision of Section 58A, shall directly or indirectly make any loan to any body corporate; give any guarantee, or provide security, in connection with a loan made by any other person to, or to any other person by, any body corporate and acquire, by subscription, purchase or otherwise the securities of any other body corporate till such default is subsisting. [sub-section (4)] 5 Register of Investments and Loans: (i) Every company shall keep a register showing the following particulars in respect of every investment or loan made, guarantee given or security provided by it in relation to any body corporate under subsection (1), namely: — the name of the body corporate; — the amount, terms and purpose of the investment or loan or security or guarantee; — the date on which the investment or loan has been made; and — the date on which the guarantee has been given or security has been provided in connection with a loan. 6 The particulars of investment, loan, guarantee referred to in sub-section (1) shall be entered chronologically in the register aforesaid within seven days of the making of such investment or loan, or the giving of such guarantee or the provision of such security. [sub-section (5)] Corporate and Allied Laws 3.58 7 ( The register referred to in sub-section (5) shall be kept at the registered office of the company concerned and shall be open to inspection at such office and the extracts may be taken therefrom and copies thereof may be required, by any member of the company to the same extent, in the same manner, and on payment of the same fees as in the case of the register of members of the company; and the provisions of Section 163 shall apply accordingly. [sub-section (6)]
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