Loans query

This query is : Resolved

hari (Querist)
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21 December 2010 Dear All,

I have two queries :-

1) Whether a Company can give loan to other company with out interest.

2) And another query is that Company B has already borrowed loan from another Company A - whether Company B can ratify its borrowings by passing a resolution in the subsequent meeting of its Board.

Regards
Harish

udit sharma

udit sharma (Expert)
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21 December 2010 Hi...

Inter Corporate Loans, Investments, Deposits etc. are governed by the provisions of Section 372A of the Companies Act, 1956.

Yes, you can a Company can give Loan to any other Company in complinace with the provisions of section 372A of the Companies Act, 1956. However, the rate of interest should not be less than the prevailing Bank Rate. Section 372A is not applicable in case of a Loan made by a Holding Company to its Wholly Owned Subsidiary. Hence, a Holding Company can give an interest free loan to its wholly owned subsidiary.

2. Regarding your second query, if the Company has only passed a Board Resolution and not availed any loan from Company A, then in my personal opinion, u can pass a Board resolution in the subsequent Board Meeting to supercede the previous Board Resolution.

However, if the Loan has been availed, then the Board Resolution cant ratify the Borrowings.

This is my personal opinion and views of eminent experts are welcome...

God Bless

Udit Sharma

udit sharma

udit sharma (Expert)
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21 December 2010 Hi...

One more thing...

Provisions of section 372A are not applicable to an Independent Private Company and hence an Independent Private Company can also give an interest free Loan.

Secondly, in case your Company wishes to give a Loan to a Private Company in which any Director of ur Company or any Director of ur Holding Company is a Director or member, then u will have to comply with the provision of section 295 of the Companies Act, 1956.

In case of an independent private Company no need to comply with the provisions of section 295.

God Bless

Udit Sharma

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