Related party transaction

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

19 February 2015 The loan were given to the subsidiary Company Which is incorporated outside India.

My question is that whether the loan given to subsidiary company, incorporated outside india as per section 295 of companies act 1956 ?

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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19 February 2015 when it was given is not mentioned????????

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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19 February 2015 when it was given is not mentioned????????

Querist : Anonymous

Querist : Anonymous (Querist)

19 February 2015 The loan given is before 2 years back

Querist : Anonymous

Querist : Anonymous (Querist)

19 February 2015 is it exempted under this section as it is the foreign subsidiary ..

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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21 July 2025 Under Section 295 of the Companies Act, 1956, a company cannot give loans to its directors or to companies in which directors are interested without prior approval of the company in a general meeting.

Your question:
The company has given a loan to its subsidiary company incorporated outside India.
Loan was given 2 years back.
Is Section 295 applicable here?
Section 295 applies to loans to directors or companies in which directors are interested.
A subsidiary company, whether domestic or foreign, is a separate legal entity.
Generally, giving loans to a subsidiary company is not prohibited under Section 295, provided it is not for the benefit of directors or connected parties as defined.
Important considerations:
Since it’s a foreign subsidiary, the transaction may also be subject to Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) regulations.
The company should comply with applicable FEMA regulations relating to loans to foreign entities.
Also, check whether there are any approval requirements from the Board or Shareholders as per the company’s Articles of Association or other applicable provisions.
Summary:
Section 295 does not prohibit loans to a subsidiary company, even if incorporated outside India.
Ensure compliance with other applicable laws like FEMA.
Board or shareholders’ approval may be required under other applicable provisions.

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