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Are provisions of inter-corporate loans and investments applicable only to public company?


What are the conditions for making Inter-Corporate loans and investments?

1. Approval of board.

2. Unanimous resolution passed in board meeting.

Is there any case where approval of members are also required?

Yes, u/s 372A when the amount in dealing exceeds the higher of: 60% of Paid up capital + free reserves, or 100% of free reserves. Okay, then how members will proceed? Members will pass special resolution (SR). In case of Inter-Corporate loan: SR by postal ballot, if listed, SR in GM, otherwise. In case of Inter-Corporate investments:  SR in GM only.

Tell me the conditions where the company doesn't need any approval for giving guarantee?

1. There are conditions that prevent passing of SR, and

2. In BM, approval is obtained, and

3. Resolution (later passed) is confirmed by members within 12 months of AGM/GM (earlier one). I know that approval of Public Financial Institution (PFI) is required.

Tell me the conditions when there is no requirement of approval from PFI?

When there is:

1. No default in repayment of principal and interest thereon, and

2. Limit u/s 372A is not exceeded.

Any other restriction?

Yes, 1. Rate of interest on IC Loan can't be less than prevailing bank rate.

2. If there is any default in repayment of public deposits then IC Loan can't be made.

Are there any non-applicability?

Yes, these provisions are not applicable to:

a. Banking.

b. Insurance.

c. Housing finance.

d. Infrastructure.

e. Share dealing business.

f. Dealings between holding and wholly owned subsidiary.

Where the accounts of a government company will be laid?

Member Where to be laid CG Both houses of parliament SG State legislature Both of above Both of above Who will appoint the auditor of a govt. company?

What will be the remuneration?

Comptroller and Auditor General of India (CAG) will appoint the auditor. Remuneration will be fixed in GM by shareholders.

Which is a foreign company? Give me a definite definition?

Foreign company ONLY has 2 particulars:

1. Incorporated outside India, and

2. Place of business in India.

Which penalty is attracted when a foreign company fails to comply with the act?

Fine up to Rs. 10,000 + Rs. 1000 for every day of default. I want to start of Producer Company.

What do I need?

At least 10 producers, or 2 producer institutions, or combination of both, are required to make application of registration attaching memorandum and articles to the registrar of state.

What will be the contents of the application?

1. Any object u/s 581B.

2. A statement that company is limited by shares.

3. Compliance with provision of part IX-A of the act. I want to convert my existing ISCS (Inter State Cooperative Society) into a producer company.

What should I do?

Make an application to REGISTRAR enclosing:

1. Special resolution passed by at least 66.67% of members.

2. List of members and occupation of CEO and Director.

3. Statement stating that company is engaged in at least one objective u/s 581B.

4. Memorandum + Articles.

5. Statement by at least 2 directors stating that above particulars are correct.

Note: Directors shall continue at least 1 year from the date of conversion. I want to convert my existing producer company into ISCS.

What should I do?

Make an application to HIGH COURT.

Application must be made by:

1. At least 66.67% members, or

2. 75% creditors.

And it must be approved by:

1. At least 75% members IN VALUE, or

2. At least 75% creditors IN VALUE.

How many directors are required in Producer Company?

Min: 5. Max: 15. Tenure: 1-5 years. Additional directors: 20% of the total. Directors must be elected within 90 days of formation and 1 year in case of conversion if at least 5 directors hold office.

Do I need to appoint CS for my producer company?

Only if, average turnover > Rs. 500,000 in each of the consecutive 3 years (else fine of Rs. 500 per day).

Tell me the particulars if my producer company wants to make a donation?

1. Special resolution is required.

2. Maximum amount = 3% of net profit of PY.

3. Prohibited for political matters.

4. Purpose: Only for welfare of producer members/general public or promotion of mutual assistance principles.

Tell me the particulars of loan that can be given?

1. To members: Secured by security (repayment between 3 months- 7 years).

2. To directors and relatives: After approval by members in GM.

3. Credit facility to members: Only in connection with business (Max. 6 month's credit). My producer company's registration was cancelled.

What could be the reason?

1. Business not commenced within 1 year, or

2. Objects u/s 581B not followed, or

3. Ceased to transact business with members.

What can I do to make it good?

File an appeal within 60 days of cancellation with CLB.

Chiranjiv Kumar 


Published by

CA Chiranjiv Kumar
Category Corporate Law   Report

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