Shameer Kuppanath (article assistant) (52 Points)
29 May 2012Dear Mates
There is one of my public company (client) giving loans to another private limited company which is sister company to first stated company, without having any limit. All the transaction between the company are treated as loan payment and repayment. Is it possible to do so?
If no what is the solution for this on the behalf of corporate law as well as taxation purpose.
Giridhar S Karandikar
(Team Lead)
(7548 Points)
Replied 29 May 2012
the provision of section 372A would become applicable & the public co would have to comly with the provision of the said section as the loan is being made by the public co & not the private co. If the case would have been the reverse one then the provision of the said section would not have been applicable.
the provisions fo teh section are given as follows
372A. Inter-corporate loans and investments.—(1) No company shall,
directly or indirectly,—
(a) make any loan to any other body corporate;
(b) 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
(c) acquire, by way of subscripttion, purchase or otherwise the securities of
any other body corporate,
exceeding sixty per cent of its paid-up share capital and free reserves, or hundred
per cent of its free reserves, whichever is more:
Provided that 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:
Provided further that the Board may give guarantee, without being previously
authorised by a special resolution, if,—
(a) a resolution is passed in the meeting of the Board authorising to give
guarantee in accordance with the provisions of this section;
(b) 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; and
(c) the resolution of the Board under clause (a) is confirmed within twelve
months, in a general meeting of the company or the annual general
meeting held immediately after passing of the Board's resolution,
whichever is earlier:
Provided also that the notice of such 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.
(2) No loan or investment shall be made or guarantee or security given by the
company 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:
Provided that 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, alongwith 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), if there is no default in repayment of loan instalments or payment of interest
thereon as per the terms and conditions of such loan to the public financial
institution.
(3) 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 (2 of 1934).
(4) No company, which has defaulted in complying with the provision of
section 58A, shall, directly or indirectly,—
(a) make any loan to any body corporate;
(b) 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
(c) acquire, by way of subscripttion, purchase or otherwise the securities of
any other body corporate,
till such default is subsisting.
CAclubindia
