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Loan to pvt company by ltd company

CS Pooja (Company Secretary) (305 Points)

17 June 2011

Case I: Ltd co wishes to provide loan to a pvt co. both co's are having common directors. Is sec 295 will be applicable for loan giving ltd co? Case:II Suppose if ltd co is sharholder of that pvt co then pvt co can take unsecured loan from ltd co as a share hoder. But what will be applicablity of section 295 for ltd co. Regards, Pooja

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6 Replies

Arvind Sharma (ACA) (1432 Points)
Replied 17 June 2011

Application of Sec 295 of the Companies Act, 1956

Case 1 : Loan by Ltd Co. to Pvt Com (not being Subsidiary) - applicable.

Case 2 : Loan by Ltd Co. to Pvt Com (being Subsidiary*) - NOT applicable.

* so in case of Ltd company being Shareholder of Pvt Co. Sec 295 will apply if holding is 50% or less.

1 Like

Chiradeep.R.H (Chirahi & Associates - Consultants) (240 Points)
Replied 17 June 2011

Sec.295 says without obtaining the previous approval of the Central Government in that behalf shall, directly or indirectly, make any loan to, or give any guarantee or provide any security in connection with a loan made by any other person to, or to any other person by

(C)any private company of which any such director is a director or member.

So here ltd co with out approval of CG cant make loan or othewise if made director has to vacate u/s 283

After compliance of sec.295 , Here Sec.372 A will also be applicable. As sec says no company can give directly or indirectly loan to any other body corporate,

1.Exceeding its 60% of (PUC+Reserves)

or 2. Exceeding its 100% of free Reserves which ever is more

and with out special resolution passed by ltd co.

1 Like

CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 17 June 2011

Originally posted by : Chiradeep.R.H
	Sec.295 says without obtaining the previous approval of the Central Government in that behalf shall, directly or indirectly, make any loan to, or give any guarantee or provide any security in connection with a loan made by any other person to, or to any other person by (C)any private company of which any such director is a director or member. So here ltd co with out approval of CG cant make loan or othewise if made director has to vacate u/s 283 After compliance of sec.295 , Here Sec.372 A will also be applicable. As sec says no company can give directly or indirectly loan to any other body corporate, 1.Exceeding its 60% of (PUC+Reserves) or 2. Exceeding its 100% of free Reserves which ever is more and with out special resolution passed by ltd co.

AGREED

CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 17 June 2011

Originally posted by : Chiradeep.R.H
	Sec.295 says without obtaining the previous approval of the Central Government in that behalf shall, directly or indirectly, make any loan to, or give any guarantee or provide any security in connection with a loan made by any other person to, or to any other person by (C)any private company of which any such director is a director or member. So here ltd co with out approval of CG cant make loan or othewise if made director has to vacate u/s 283 After compliance of sec.295 , Here Sec.372 A will also be applicable. As sec says no company can give directly or indirectly loan to any other body corporate, 1.Exceeding its 60% of (PUC+Reserves) or 2. Exceeding its 100% of free Reserves which ever is more and with out special resolution passed by ltd co.

AGREED

Rajnikant Vadigoppula (CA, CS And CMA Final) (919 Points)
Replied 17 June 2011

yes i agree with arvind and chiradeep

Pankaj Pendse (NA) (1089 Points)
Replied 02 July 2011

we are unlisted public lted co. we have given guarantee of loan to a LLP where all the three directors are designated parteners. will it come under the scope of section 295? if yes, what is the procedure for compliance of the same ?