Loan to related party

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This query is : Resolved

Bhavana Gupta (Querist)

18 June 2015 A loan has been given by a pvt. co. to another pvt. co. in whom a person is director in both companies & its repayment made within F/Y year & its not in ordinary course of business. However "No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested." Please tell me contravention if any & whether repayment removes the contravention?? Also tell me what can a company do to protect himself?
If advance is shown as given for flat and later returned as deal could not mature, whether this adjustment is correct or not?
Please clarify....

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B.COM, ACA, DISA Namrata

B.COM, ACA, DISA Namrata (Expert)

18 June 2015 Any loan given by a holding company to a wholly owned subsidiary is exempt from this provision provided the subsidiary company uses the loan for its principal business activity. The Act provides penalty for both lender and borrower for violating the provisions. Any advance given is outside the purview provided it is in ordinary course of business. There is no relaxation in the Act for repayment in the same year. It is prohibited.

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