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Can private ltd com give loan to another pvt ltd co

J.Rajkumar (General Manager) (28 Points)

15 June 2013

Good day to one and all. Can a private ltd company give unsecured loans / unsecured investments to another Private ltd company.In such case what are all the procedures to be followed. What is the maximum time frame the loan can be granted. What can be the interest percentage. Can anyone clarify.

Regards Rajkumar 9843141264

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12 Replies

RISHI M DAVE (CS) (25 Points)
Replied 15 June 2013

Section 372(A) of companies act, 1956

V P Narasimhan (Accounts Manager) (791 Points)
Replied 15 June 2013

Its better to have an agreement with important clauses viz., Interest % (TDS applicable) ,duration & type/terms of repayment (in howmany instalments) so on for a safer side to get rid off any legal complication may arise if scrutiny comes.

Ashish M (Chartered Accountant) (2731 Points)
Replied 15 June 2013

Yes... of course..!!! Pvt. companies can give loans to each other.. there is no bar..! Nor there is any bar on the limit or interest unless it is charged at an arms length price.

Simply pass resolution to that effect.

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CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 15 June 2013

yes . agreed with above replies

umaa's legal clinic (simple solutions for complex legal issues) (165 Points)
Replied 15 June 2013

Dear Rajkumar,

A company registered under the provisions of the Companies act, 1956 may give loan to any other body corporate not exceeding 60% of its paid-up share capital and free reserves or hundred percent of its free reserves, whichever is more.

Procedure,

a. board resolution

b. pass special resolution

c. take approval of company's lenders

Duration time:

incorporate in the loan agreement all terms and conditions

Interest rate:

shall not be less than the interest rate prevailing bak rate.

Alok Siddapur (Consultant) (229 Points)
Replied 16 June 2013

Board resolution has to be passed at meeting of Board. 'Resolution by circulation' will not be applicable for sec 372(A) of Companies Act

prakriti sarvouy, C.S. (Company Secretary) (24 Points)
Replied 16 June 2013

Section 372A is not applicable to private companies as mentioned in 372A(8)(iii). It will only apply to private companies which are subsidiaries of a public company. So in your case the section is not applicable.

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 16 June 2013

Section 372A is not applicable to private company. Hence subject to provisions of the Articles, Board resolution is sufficient for giving loans and making investment in shares of another private company. You have to just take care of Sec.14A of Income Tax Act if you are investing in shares out of borrowed funds since interest on loan may be disallowed in that case. There is no restriction on rate of interest. However, it should be reasonable at arms length basis.

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