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Minimum rate of interest for loan obtained from directors.

Vinay Pisupati (Chartered Accountant) (110 Points)

26 June 2013

What is the minimum rate of interest a company must charge for the loan which it has obtained from Directors & Sister Concern? Is there any rate prescribed by The Companies Act, 1956.

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3 Replies

hritik (na) (194 Points)
Replied 26 June 2013

plz tell me ans of this question ...injection of private capital and managment with inferior technologies lead to more efficient utilization of resources thus releasing public finances for alternative uses. it is true or false... n give reason

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Dhruvi N suthar (Account Executive) (303 Points)
Replied 26 June 2013

Hello,

There is no hard & fast rule for the same

But it should be reasonable I.e. Not below the market rate of interest.

umaa's legal clinic (simple solutions for complex legal issues) (165 Points)
Replied 27 June 2013

Dear Vinay,

1. None of the provisions of the companies act, provides for taking loans from directors, so if the articles of association provides for it, companies may take loans from directors as agreed upon between the parties.

2. Sec. 372A of the companies act, 1956 deals with intercorporate loans(sister concerns also) and rate of interest shall not be less than the bank rate prevailing, but this section does not apply to private companies which is not a subsidiary of public company.