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Intercorporate loans

Chitra (CS) (38 Points)

22 May 2017

Whether a pvt ltd co can lend to another pvt ltd Co where the directors are common in both the Companies?

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4 Replies

Sudhir Todkar (CS Professional) (1021 Points)
Replied 22 May 2017

Yes, if AOA permits to do so.

Subject to conditions that loan should be given within limits as prescribed in AOA otherwise company need to alter AOA . If AOA is silent then Company should taken shareholders approval along with Board if it exceeds paid up share + Free reserves + SPA or 100% of FR + SRA.

Approval of financial institutions is also required if such company has taken loan and mentioned in loan agreement otherwise not required

The loan amount is used by such private company only for principal business & not by Directors for their own/relative purpose.

Jithin scaria (Practicing Company Secretary) (112 Points)
Replied 23 May 2017

Please refer section 185 of Companies Act,2013. Every Private Limited Company can't give loan to another Private Limited Company in which the Directors are common.

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Sudhir Todkar (CS Professional) (1021 Points)
Replied 23 May 2017

Yes Jithin Scaria as you said it's correct, Any private company of which such Director is a director or member of other private company CANNOT give loan or guarantee or provide any security either directly or indirectly.

Thank you for correcting my mistake.

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Jithin scaria (Practicing Company Secretary) (112 Points)
Replied 24 May 2017

Sec 185 speaks about Restriction on giving loan to directors and other companies in which the Directors are interested. But the following Private Companies are exempted from Sec.185.

1. No other body Corporate has invested in that Private Company.

2. Which have borrowings from banks or financial institutions or any body corporate is less than twice of their paid up capital or Rs.50 Crores whichever is less.

3.Has not defaulted in repayment of such borrowings subsisting at the time of making transactions under this section.