Mr. A and Mrs. A (wife of Mr. A) are the only directors in Pvt. Ltd. Companies ABC Pvt. Ltd., BCD Pvt. Ltd. and CDE Pvt. Ltd. Mr. A is also sole Proprietor of firm DEF. Paid up share capital plus free reserves in the above three Pvt. Ltd. Companies are 200.00 lacs, 250.00 lacs and 300.00 lacs respectively.
Shareholding of ABC Pvt. Ltd. and BCD Pvt. Ltd. is held by Mr. A and Mrs. A in the ratio of 95% and 5% in both the companies.
85% Shareholding of CDE Pvt. Ltd. is held by company ABC Pvt. Ltd., 9% shareholding is held by company BCD Pvt. Ltd. and balance 6% shareholding is held by Mr. A. Due to 85% shareholding, company CDE Pvt. Ltd. has become subsidiary of Company ABC Pvt. Ltd. All companies in question are private limited companies and none of the company is subsidiary of Public Limited Company.
Now, CDE Pvt. Ltd. is having surplus funds (owned and not borrowed) including retained profit of Rs. 5.00 lacs and want to give unsecured loans to BCD Pvt. Ltd., to Mr. A (Director) and also to sole Proprietary firm DEF of Director Mr. A, which may be at nominal rate of interest say 5% p.a.
Is there any restriction or maximum limit under Companies Act, 1956 for these unsecured loans ? What proceedure is to be followed for these unsecured loans by lender and borrower companies ? Please guide me with your expert opinion.
Thanks in advance.
CAclubindia
