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Inter corporate loans under section 372A

CS Pooja (Company Secretary) (305 Points)

13 September 2010

If public companies main object consist of object as '' to finance bodies corporate'' then can it provide loan to sister company within the limits specified under section 372A by passing the Board resolution or it will be treated as NBFC?

Its urgent.

Regards,

CS Pooja

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8 Replies

Shraddha Shukla (Corporate law Consultant) (346 Points)
Replied 13 September 2010

it will be treated as an NBFC.

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CS Pooja (Company Secretary) (305 Points)
Replied 13 September 2010

Thank You for reply. my query is if section 372 A provides the right to give loans to bodies corporate then still i have to get the company registered with RBI as NBFC before giving loan to my sister company?

Regards,

CS Pooja

J. Manivannan (Advocate & IP) (242 Points)
Replied 13 September 2010

No Need, you should complied the provsions of section of 372A is enough.

Mukund (CA Final (New) Group One Cleared) (177 Points)
Replied 13 September 2010

Listen... The section 372A is not applicable for companies whose main object is financing. Ex: Banks, NBFCs. It's not necessary to pass board resolution and all, since the company is a financing company. And all financing companies are to be registered with RBI. If your company has not done it so far, do it. Non-registration with RBI doesn't prohibit a NBFC from financing.

CS Pooja (Company Secretary) (305 Points)
Replied 13 September 2010

Section 372 A exept banking companies, but no where it is mentioned NBFC.

what is the effect of financing without registration with RBI?

Please clarify

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Mukund (CA Final (New) Group One Cleared) (177 Points)
Replied 14 September 2010

No i just verified it. Kindly refer this link https://legalserviceindia.com/article/l299-Section-372A-of-the-Companies-Act.html.

Requirements for registration:

Ø Section 45-IA of the Reserve Bank of India Act, 1934 provides that No non-banking financial company shall commence or carry on business of a non-banking financial institution without –

(a) obtaining a certificate of registration issued under Chapter IIIB; and

(b) having the net owned fund of twenty-five lakh rupees or such other amount, not exceeding two hundred lakh rupees, as RBI may, by notification in the Official Gazette, specify.

Penalties for non-registration:

Ø Sub-section (4A) of Section 58B of the Reserve Bank of India Act, 1934 provides

“If any person contravenes the provisions of sub-section (1) of section 45-IA, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to five years and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.”

C.A. Prasad Bhumkar (prop) (52 Points)
Replied 14 September 2010

for a company to be declared as NBFC it should satisfy the following two criteria:

1) 50% of the assets should be financial assets

2) 50% or more of the total income should be from thoes assets.

so the public company can give loans to sister concern within limits of sec 372 A.but if it satisfies above two conditions then it will be treated as NBFC.