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Inter company loans and investments

on 28 July 2011


The provisions of section 370 and 372 have been combined with sec 372 A.

Ceiling of loans, guarantee, Investments -

Company cant directly or indirectly:

1. Make any loan, guarantee /provide security to any body corporate.

2. Acquire securities by way of subscription or otherwise of any body corporate.

3. Exceeding 60 % of aggregate of its paid up capital and free resaves.

4. 100% of free reserves whichever is more.

Provision regarding above:

Within prescribed limits

Beyond prescribed limits

Pass a resolution at the board meeting

Obtain prior approval of shareholder by way of special resolution (rule4 of co passing of resolution by Postal ballot Rules 2001;

Obtain prior approval of concern public financial institution in case of default made in payment of a loan.

Obtain prior approval of concern public financial institution;

Pass a resolution at BM

Special resolution must specify -

1. Specific limits

2. Particulars of body corporate.

3. Propose of investment loans and security.

The board may give guarantee without being previously authorized by SR if (not include loans and others) -

1. A resolution passed at board meeting

2. Due to exceptional circumstances

3. The resolution of board is confirmed within 12 months of AGM Or GM whichever is earlier.

For the loans given by the company -

a) Its rate of interest should be lower than bank rate of RBI.

b) All the particulars regarding loans and investments should be recorded within 7 days of transactions and should be kept open for inspection by any member.

c) Company in default u/s 58A cant make any investment, loans until such default continues.

Exceptions -

1. Banking / Insurance/ house financing/ industrial financing.

2. A company whose principle business is acquisition of shares, debentures, stocks and securities.

3. A private company.

4. The company whose shares is allotted in pursuance of sec 81(1)(a).

5. A loan/guarantee by holding co to its subsidiary company for acquisition.

Penalties -

1. Rs.50000 or Rs. 50000 with imprisonment.

2. RS.5000 for non maintenance of register for RS.500 /day.

Thanks and regards.


Category Corporate Law
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