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Inter company loans/advances

PRAVIN DALAL (GM Corporate - Accounts) (37 Points)

05 April 2012

Can one company take loan/advances from the another group company having same directors ?

and if dicrector can take loan from company (pvt ltd) ,what are the implications ?

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2 Replies

Giridhar S Karandikar (Team Lead) (7548 Points)
Replied 05 April 2012

Sub-section 8 to section 372A of the Co's act states the circumstances under whihc the provision of section 372A would not apply whihc is as follows:

(8) Nothing contained in this section shall apply,—

(a) to any loan made, any guarantee given or any security provided or any

investment made by—

(i) a banking company, or an insurance company, or a housing finance

company in the ordinary course of its business, or a company

established with the object of financing industrial enterprises, or of

providing infrastructural facilities;

(ii) a company whose principal business is the acquisition of shares,

stock, debentures or other securities;

(iii) a private company, unless it is a subsidiary of a public company;

(b) to investment made in shares allotted in pursuance of clause (a) of subsection

(1) of section 81;

(d) to any guarantee given or any security provided by a holding company in

respect of loan made to its wholly owned subsidiary; or

(e) to acquisition by a holding company, by way of subscripttion, purchases

or otherwise, the securities of its wholly onwed subsidiary.

So in your case if an holding co is making any loan/gurante to it's wholly owned subsidiary then section 372A would not apply. in all other cases it would apply & the provisions of the section will be requried to be adhered to.

Sub-section (2) of section 295 relating to Loans to Directors exempts a private co from teh application of the provions of section 295 unless it is an subsidiary of the public co. the relevant extrtacts of sub-section (2) are given below:

4[(2) Sub-section (1) shall not apply to—

(a) any loan made, guarantee given or security provided—

(i) by a private company unless it is a subsidiary of a public company,

(ii) by a banking company;

1[(b) any loan made by a holding company to its subsidiary company;]

2[(c) any guarantee given or security provided by a holding company in

respect of any loan made to its subsidiary company.]

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Anurag Kashyap (In Job) (63 Points)
Replied 22 November 2012

Hi Giridhar,

Can a company situated in Malaysia grant Loan or Advance to a company in India? Here both the companies belong to the same group of companies. What are the terms and conditions?