Inter-corporate loans - Under same management - Whether section 370 applies to section 25 companies limited by guarantee and having no share capital - Companies Law - Letter : No. 1/6/88‑CL‑V,

Letter : No. 1/6/88 CL V, dated 28 4 1989. Subject:- Inter-corporate loans - Under same management - Whether section 370 applies to section 25 companies limited by guarantee and having no share capital Loan has to be computed with reference to the lending company s subscribed capital and its free reserves. A section 25 company may or may not have share capital. If it has share capital, the provision of section 370 become applicable in the same manner as these are applicable to any other company. In case it does not have share capital and is a guarantee company simpliciter, even then it can have free reserves and percentages under section 370 can be computed in relation to such free reserves alone. Hence, in either case, the provisions of section 370 become applicable to the grant of loan by a section 25 company. As regards giving guarantee or providing security by a company, the existence of share capital on free reserves is not relevant and as such in these cases, the provisions of section 370 are also attracted. In view of the above, it appears that provisions of section 370 are applicable to a section 25 company, unless it qualifies for an exemption under sub section (2) of section 370.