INVESTMENT AND LOANS

INVESTMENT AND LOANS

Inter – Corporate Loans and Investment – Section 372A

1. No company shall, directly or indirectly -

      (a) Make any loan to any other body corporate;

      (b) give any guarantee, or provide security, in connection with a loan made by any other person to, or to any other person, by anybody corporate; and

      (c) acquire, by way of subscription, purchase or otherwise the securities of any other body corporate,

    exceeding sixty per cent of its paid-up share capital and free reserves, or hundred per cent of its free reserves, whichever is more.

2. No investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorized by a special resolution passed in a general meeting.

3. Loan given to any body corporate shall carry the rate of interest not lowers than the prevailing bank rate.

4. Section 372A(5) Every company shall keep a register showing the particulars in respect of every investment or loan made, guarantee given or security provided by it in relation to any body corporate namely -

               (i) the name of the body corporate;

               (ii) the amount, terms and purpose of the investment or loan or security or guarantee;

               (iii) the date on which the investment or loan has been made; and

               (iv) the date on which the guarantee has been given or security has been provided in connection with a loan.

If default is made in complying with the provisions of sub-section (5) above, the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees and also with a further fine which may extend to five hundred rupees for every day after the first during which the default continues

Penalty

If default is made in complying with the provisions of this section, other than sub-section (5), the company and every officer of the company who is in default shall be punishable with imprisonment which may extend to two years or with fine which may extend to fifty thousand rupees.

Exemptions

Nothing contained on Section 372A shall apply:-

• To any loan made or any guarantee given to a banking company, or any insurance Company, or a housing finance company in the ordinary course of its business, or of providing infrastructure facilities
• A company whose principal business is the acquisition of shares, stock, debentures or other securities.
• A private company, unless it is a subsidiary of a public company.

To investment made in shares allotted in pursuance of Section 81(1)(a) i.e. such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid-up on those shares at that date

To any loan made by a holding company to it’s wholly – owned subsidiary

To any guarantee given or any security provided by a holding company in respect of loan made to its wholly- owned subsidiary

To acquisition by a holding company, by way of subscription, purchases or otherwise, the securities of its wholly-owned subsidiary.

Investments to be held in Company’s own name – Section 49(1)

All investments made by a company on its own behalf shall be made and held by it in its own name and where any such investments are not so held at the commencement of this Act the company shall, within a period of one year from such commencement, either cause them to be transferred to, and hold them in, its own name, or dispose of them.