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how to verify

kumar (student) (138 Points)

21 December 2009

how as an statutory auditor verify the intercorporate deposits made by listed companies in other companies? and compliance as per provision of companies act 1956, whether sec.372A is applicable in this case?

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CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 21 December 2009

Kumar,

Yes, 372A will be applicable as per my knowledge.

The same can be verfied by Balance sheet, management representation letter, BODM Minutes, GM Minutes, correspodance with Stock exchaneg or SEBI or CG, any approval from PFI nd any legal or corporate consultant's letter of opinion on this matter etc.

for the compliances u shud refer the procedure for the same..

Adarsh

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CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 21 December 2009

PROCEDURE FOR INTER-CORPORATE LOANS U/S 372A

1. Hold a Board meeting to approve the making/giving/providing of any intercorporate loan, investment, guarantee or securities within the purview of section 372A.
2. Such resolution must be passed with the consent of all the directors present at the Board meeting that is nem. diss. (nemine dissentiente) meaning no one dissenting or unanimously. (nemine contradiccente) [Section 372A(2)]
3. Board is authorized to give approval, if it dos not exceed higher of the following two—
(a) 60% of the paid-up share capital and free reserves; or
(b) 100% of the free reserves of the company.
4. This limit is to be calculated at any point of time with reference to—
(a) total cost of investments in securities of all bodies corporate made till that time;
(b) total amount of outstanding loans given to other bodies corporate till that time;

(c) total amount of guarantees given in respect of loans given to/by other bodies corporate up to and valid till that time;
(d) total amount of securities provided in respect of loans given to/by other bodies corporate up to and valid till that time.
5. The limit of 60% or 100% is to be calculated with reference to the latest balance sheet of a company.
6. Paid-up capital includes equity as well as preference share capital which is fully paid-up as disclosed in the balance sheet.
7. If existing and proposed investments, loans, guarantee and securities exceed the above limit, proposal is to be previously authorised by a special resolution passed in a general meeting.
8. Approve the notice of general meeting alongwith the explanatory statement to pass the special resolution. The special resolution must specify—
(a) the limits that will be required in excess of the prescribed limits involved in the proposal;
(b) particulars of the body corporate in which the loans, investments,
guarantees, securities is proposed to be made/given or provided;
(c) the purpose of the proposed inter-corporate loan/investment etc.
(d) the source of funds; and
(e) other relevant details.
9. In case of a listed company:
(a) forward three copies of the notice sent to the shareholders to the stock exchanges where securities of company are listed.
(b) file six copies (one of which will be certified) of such amendments to the stock exchanges as soon as they are adopted by the company in general meeting.
(c) forward promptly a copy of the proceedings of the general meeting to the stock exchanges.
10. Approval of a financial institution referred to in section 4A of the Act, from which the company has taken any term loan will also be necessary under this section, if the following conditions are satisfied:
(a) the total amount of inter-corporate investments, loans, guarantees and securities is not less than 60% of the paid-up share capital and free reserves;
and
(b) there is default in payment of an instalment of the term loan or interest thereon as per the terms thereof. [Section 372A(2), proviso]
11. The list of financial institutions under section 4A is given in the Referencer.
12. This approval will be required irrespective of whether under the agreement relating to the term loan, such approval is required or not.
13. The approval may be a general approval; it need not be a specific. A financial institution may give approval subject to certain limits and such conditions as it may think fit.
14. After passing of special resolution, file e-Form 23 electronically along with a certified copy of the resolution and explanatory statement within 30 days from the date of such resolution, with the ROC.

15. The loan given to a body corporate under section 372A shall carry interest at a rate not lower than the prevailing Bank rate made under section 49 of the Reserve Bank of India Act, 1934. Bank rate means the rate, which is declared by the bank as the standard rate under section 49 of the Reserve Bank of India Act,
1934.
16. Enter the particulars of investments, loans, guarantees and securities in the Register of Investments, Loans, Guarantees and Securities aforesaid within 7 days of the making of such investment. [Section 372A(5)(a)]
17. Any member of the company can inspect the Register. A person who is not a member of the company has no right to inspect it. The Register must be made available for inspection in the same manner and on payment of the same fees as the Register of Members.