Utilization of funds from cash credit for group company

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This query is : Resolved

amit (Querist)

09 April 2011 I want to know,when ABC Private Co.Ltd is availing cash credit facility from nationalized bank on the basis of rental lease income, in such case if the said company gives advances / loan to its group company XYZ Co.Pvt.Ltd.(where the share holders and directors are common in both the companies)from its cash credit account.

XYZ Co.Pvt.Ltd is a construction company which do not have availabe funds of its own to make outstanding payments to its creditors. So for this purpose if ABC Co.Pvt.Ltd provides advance/loan by making payment through chequues from its cash credit banking to XYZ Co.Pvt.ltd.,'s bank account ,in this case can statutory auditor of XYZ Private Co,Ltd and ABC co.Pvt.Ltd have right to object on such tranactions during there respective audits ?

In case of ABC Private Co.Ltd, the auditor of this company can make a point in (xvi) of clause 4 in Companies (Auditor's Report)Order ,2003.Is there any addtional provision under Companies Act,1956 to object on such transaction ?

But, in case of XYZ Co.Pvt.Ltd.,can the auditor of this company object on such transaction and if yes, on the basis of which section of Companies Act, 1956 or rules there on, if any?

The provisions under section 295(2),300(2) and 372A of Companies Act 1956 are not applicable to private company unless it is subsidiary of Public Co.

Note : The said auditors are appointed under the provisions of section 224 of Companies Act,1956.

seshadri

seshadri (Expert)

10 April 2011 Since the cash credit has been availed by discounting the future rental income and the companies involved are both private limited companies, I do not find any objection for these loans and advances, unless it is prejuidicial to the interest of either of the companies. This is the specific comment we have to make in the CARO

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