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.
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