Rish s
Quick Summary
To Give
- Loan / Guarantee / security to any person / Body corporate OR
- Guarantee / security in connection with loan taken by person / body corporate
- Acquire shares of any Body corporate (Investment cannot be from more than 2 layers of investment companies)
If the aggregate of all such exceeds
- 60% of paid-up capital + free reserves + Securities premium OR
- 100% of free reserves + Securities premium
- Whichever is more.
Then any new loan / guarantee / security shall require
- All directors have to approve resolution in Board meeting
- Prior approval of Public financial institution in case of term loan.
- Pass special resolution to give any further such loan / guarantee / security. (Explanatory statement shall mention full details of loan / guarantee / security, and purpose.
- Interest rate shall be at least prevailing yield of government security (1 / 3 / 5 / 10 years)
Exemption
- Co engaged in financing / investment can lend / invest in regular course of business without special resolution.
- If given by Holding company to wholly owned subsidiary company for its principal business activities.
Compliance
- Disclose full particulars in the financial statements
- Maintain register of such Loan / Guarantee / security
- MGT 14 has to be filed within 30 days of Special resolution
Fines for contravention
- Co: Min 25,000. Max 5 lacs.
- Every officer in default – imprisonment of up to 2 years or fine Min 25,000. Max 1 lacs.
FAQ :
The aggregate of loans, guarantees, and investments cannot exceed 60% of paid-up capital plus free reserves and securities premium, or 100% of free reserves plus securities premium, whichever is greater.
A special resolution is required if the aggregate of loans, guarantees, or investments exceeds the specified limits, or for any further loan, guarantee, or security beyond those limits.
Yes, companies engaged in the regular course of their financing or investment business are exempt. Also, a holding company providing loans to its wholly-owned subsidiary for its principal business activities is exempt.
The explanatory statement must detail the full particulars of the loan, guarantee, or security, and its purpose.
Companies can face fines from a minimum of £25,000 to a maximum of £500,000. Officers in default may be imprisoned for up to two years or fined between £25,000 and £100,000.
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