Loan by an NBFC Company to another Company with Common Directors

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SC Jha

SC Jha (Querist)
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26 December 2024 Can an NBFC Company give loan to another Non-NBFC Company with Common Directors ?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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29 December 2024 Companies Act, 2013:
Section 185: This section restricts loans by a company to its directors or entities in which its directors are interested. However, there are exceptions where such loans can be made, subject to compliance with prescribed conditions.
Loans can be provided if:
A special resolution is passed by the shareholders.
The loan is made in the ordinary course of business and at an interest rate not less than the prevailing yield of government securities.
Section 186: This section regulates loans and investments made by a company and imposes limits based on the company's net worth and other criteria. Approval of the board or shareholders may be required if the prescribed limits are exceeded.

RBI Guidelines for NBFCs:
NBFCs must comply with the Reserve Bank of India's (RBI) Master Directions on lending, including prudential norms such as exposure limits, provisioning requirements, and related-party transactions.
Loans to entities with common directors may fall under the scope of related-party transactions. Such transactions must be transparent, properly documented, and conducted on an arm's length basis.

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