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Loan from one private company to other private company having common director

19 April 2020

Can a private company extend a loan to other private company for working capital having common directors?
When it is charging interest rate as per Sbi lending rate.

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4 Replies

(Guest)

There are two conditions in section 185(2)

(a) a special resolution is passed by the company in general meeting:

Provided that the explanatory statement to the notice for the relevant general meeting shall disclose the full particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security and any other relevant fact; and

(b) the loans are utilised by the borrowing company for its principal business activities.

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Durga Prasad (97 Points)
Replied 19 April 2020

This loan may certified as a significant related party transactions.

Harish choursiya (Student cs professional ) (249 Points)
Replied 19 April 2020

As far as loan and investment is concerned section 186 of companies Act,2013 would be applicable,Wherein one company may sanctions loan ,investments or provide guarantee security with respects to loan subject to maximum limit as mention in 186(2).however company may provide loan, investments etc beyond this limit by passing special resolution.

With respects to your query this is emanated that company has already made loan investments to the certain period of time and for specified amount. Now company wants to extend the tenure of repayment of loan.in otherwords altering the terms of loan agreement by way of extension of tenure.

It is advisable to avoid any non compliance of law on the parts of the company,Board of Directors of the company approve the extension of loan tenure and accordingly take members consent then proceed further.

For the interest rate is concerned company must follow section 186(7).

This is based on my personal understanding of the provision of the said Act.

Harish choursiya (Student cs professional ) (249 Points)
Replied 19 April 2020

Continuous part of your query As far as common director is concerned that transactions also covered in section 188 because definition of related party as defined under section 2(76) which expressly covered these party so accordingly comply this provisions also by disclosing the interests at the meeting itself by interested director and shall not vote for that transaction. 1.Maintain register of investment in MBP-4 section 189 read with rule 16 2. Pass ordinary resolution if limit is exceed as mention in rule 15.