Inter -company loans and investments

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RENU SINGH

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21627 Points Joined March 2011

Inter -company loans and Investments

Sec 370 Sec 372

The provisions of section 370 and 372 have been combined with sec 372 A

Ceiling of loans, guarantee , Investments ----

Company cant directly or indirectly

· Make any loan, guarantee /provide security to any body corporate.

· Acquire securities by way of subscripttion or otherwise of any body corporate.

§ Exceeding 60 % of aggregate of its paid up capital and free reseves.

§ 100% of free reserves whichever is more.

Provision regarding ABOVE

Within prescribed limits

Beyond prescribed limits

Pass a resolution at the board meeting

Obtain prior approval of shareholder by way of special resolution (rule4 of co passing of resolution by Postal ballot Rules 2001;

Obtain prior approval of concern public financial institution in case of default made in payment of a loan.

Obtain prior approval of concern public financial institution;

Pass a resolution at BM

Spl resolution must specify -

o Specific limits

o Particulars of body corporate.

o Propose of investment loans and security.

The board may give guarantee Without being previously authorized by SR if ….. (not incl loans and others.)

v A resolution passed at board meeting

v Due to exceptional circumstances

v The resolution of board is confirmed within 12 months of AGM Or GM whichever is earlier.

For the loans given by the co-----

a) Its rate of int should be lower than bank rate of RBI

b) All the particulars regarding loans and investments should be recorded within 7 days of transactions and should be kept open for inspection by any member.

c) Company in default u/s 58A cant make any investment , loans until such default continues.

EXCEPTIONS

Ø Banking / Insurance/ house financing/ industrial financing

Ø A co. whose principle business is acquisition of shares,debentures, stocks and securities .

Ø A private co.

Ø The co whose shares is allotted in pursuance of sec 81(1)(a)

Ø A loan/ guarantee by holding co to its subsidiary company for acquisition

Penalties

ü Rs.50000 or Rs. 50000 with imprisonment

ü RS.5000 for non maintenance of register for RS.500 /day.

Thanks and regards

Renu

Replies (20)

Manjul Soni.

CA Student.

1407 Points Joined February 2009

Nice Info
and thanks For sharing in the Forum................
it will help in studies............................................................

Keep Sharing.....................

CA ADITYA SHARMA

CA IN PRACTICE

16719 Points Joined May 2011

nice post

thanks for sharing

Hardik Dave

IPCC and CS Professional(FINAL) Student

15533 Points Joined January 2009

Sister, Thanku for sharing important artice.smile. Great and perfect explanation.

Chintan

Accounts and Finance Executive CS Execut

98 Points Joined July 2011

thnks .. very informative

mounika

semi qualified chartered accountant

981 Points Joined May 2011

too good. keep sharing like this

Vikas Gupta

CHARTERED ACCOUNTANT

16295 Points Joined January 2010

Originally posted by : Hardik Dave
	Sister, Thanku for sharing important artice.smile. Great and perfect explanation.

Jyoti

CS Trainee

541 Points Joined August 2010

Thanks Dear for Good Work. Keep Sharing...

Ritesh Indian Son[CMACSCA]

" Simple Living High Thinking "

4117 Points Joined November 2009

hey renu dear, i will like to congo u 4 choosing such topic.........thnx 4 sharing.......tk cre..

RG - A Helping Hand

Company Secretary

13867 Points Joined May 2011

It is a very good effort so congrats ji...However presentation is something which needs major improvement and that is not difficult. For a site like CCI big thing is content which is bang on....

I will definately try to add more points bcoz section 372A is truely an ocean....as far as interpratations of law is concerned...

Thanks

Guest

Good Topic

Thanks Renu

Karan Teli

Life Is just an Illusion...!!

4573 Points Joined August 2010

awesome work renu..,

would definatey help before exams....

Keep sharing the same...

Somshekar (Rankholder)

158 Points Joined September 2009

Good Article. For CA Final students this is a definite question. please understand the provision and calculation.

this is exempted for private company unless it is a subsidiary of public company.

In other words, public company should not hold more than 50% of share capital of private company.

RG - A Helping Hand

Company Secretary

13867 Points Joined May 2011

Few Definitions are indispensible part of Section 372A for interpretation purpose, hence re-produced below:

Meaning of "Investment"

'Investment' means investment in the securities of any other body corporate, which includes shares, debentures, convertible debentures, bonds, etc. as defined under the Securities and Exchange Board of India Act, 1992 and the Securities Contract (Regulation) Act, 1956.

Meaning of "Free Reserves"

As per the Explanation given under section 372A, 'free reserves' means those reserves which, as per the latest audited balance sheet of the company, are free for distribution as dividend and shall include balance to the credit of the securities premium account but shall not include share application money.

Definition of "Body Corporate"

Section 2(7) of the Companies Act, 1956 defines 'body corporate' as a company incorporated outside India but does not include:—

(a) a corporation sole;

(b) a co-operative society registered under any law relating to co-operative societies; and

(c) any other body corporate not being a company as defined in the Act, which the Central Government may, by notification in the Official Gazette, specify in this behalf.

RG - A Helping Hand

Company Secretary

13867 Points Joined May 2011

No blanket permission will be given by the shareholders

The particulars that are required to be given in the notice for the general meeting envisage that every proposal in excess of the limits of 60% or 100% shall be specifically approved at the general meeting. A blanket permission of the shareholders empowering the Board to make loans or investments or to give guarantee or security upto a certain aggregate limit will not be adequate compliance with the provisions. Circular No. 8/99, dated 4-6-1999 issued by the DCA, stating that en-block approval should be avoided (except in the case of guarantee where the resolution can indicate an amount on annual basis).