Availing of Unsecured Loan by public ltd company

This query is : Resolved

Muralidharan (Querist)
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22 March 2011 22nd March 2011

Dear Members

ABC Limited is a public limited company. XYZ is a Private Limited Company.

XYZ holds about 90% shares of ABC. Therefore ABC Limited is a subsidiary company of XYZ Pvt Ltd

Kindly inform whether ABC Limited can avail unsecured loan from XYZ Pvt Ltd which happens to be its holding company as well as shareholder.

Whether this would be a violation of Section 58A read with Deposit Rules of Companies Act

with regards

Muralidharan

CA Robin Betala

CA Robin Betala (Expert)
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22 March 2011 Hi Muralidharan
After reading your case, my opinion is that there is no violation of Section 58A as it says - " Pvt. Limited Company is prohibited from inviting or accepting deposits from persons other then its members, directors or their relatives" But in your case Pvt co. is giving loan rather then accepting loan.

As far as Section 372A is concerned it is applicable on pvt co. which are subsidary of Public co. therefore section 372A is also not applicable in your case.

So my opinion is there is no violation of Section 58A and 372A.

Jayashree S Iyer

Jayashree S Iyer (Expert)
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23 March 2011 Your case would fall under Intercorporate loans u/s.372A. It will not be a "Deposit" as any amount received by a company from any other company is excluded from the term "deposit" as per Section 2(b)(iv) of Companies (Acceptance of Deposit) Rules, 1975.

Being subsidiary of a public company there is no exemption and Section 372A would be applicable.

Yours is not a wholly owned subsidiary hence exemption u/s.372A(8)(c) is also not available.

So you have to ensure compliance of Section 372A.

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