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