Loan to related party

Co Act 2013 767 views 4 replies

Ranjeet

Company Secretary

41 Points Joined October 2014

Dear All,

A company has given loan to a partnership firm in which almost all the directors are partners. the loan was given in 2014-15 and the same was reversed in the same financial year. As auditor has raised a query what can be the possible reason be given for transfer of funds.

Can it be said that the money was an advance for some services to be rendered, but later the contract or agreement was revoked.

Request you suggest the way out (if any) to frisk the Auditors.

Requisite paper can be prepared.

Thanks

Regards

Ranjeet

9819290813

Replies (4)

CS MOHIT SALUJA

PRACTICING CS Jalandhar 9914558709

5155 Points Joined April 2010

If the company will give money for services to be received form such partnership firm, that would have come under related party transactions under section 188. And for this requisite section had to be followed. And if the company had not followed the one, then safe side is to think about other options than that of using the one you mentioned above.

CA Parul Saxena

8527 Points Joined May 2010

Mr. Mohit Saluja

Our co.returned unsecured loan taken from directors'relative on 31.03.15 and 01.04.15 co. again took back this money as unsecured loan. Can you please elaborate consequences of the same

P C Agrawal

Registered independent director Past Ch

8229 Points Joined March 2007

Legal provisions have to be complied with throughout the year and not just at the end of the year. It will be treated as 'deposit' (unless covered under any of the exemptions) and penal provisions for contravention will get attracted.

CA Parul Saxena

8527 Points Joined May 2010

Thanks Mr.P.C.Aggarwal

Me too have asked several times to our management not to do this. But strange they are afraid and surprisingly our CA firm has advised this and no penalty levied so far on this contravention.