Procedure relating to Inter-company Loans

1. Ensure that the Memorandum of Association contains the power to lend funds of the company. If not, then amend it accordingly. The Board’s power to make loans is governed by Sec. 292.

2. Pass a unanimous resolution of the Board of Directors at a meeting of the

Board. 3. Make note of the aggregate of the loans already made to bodies corporate. 4. Arrange to pass a special resolution if the aggregate of loans, guarantees, etc.,

and investments in other bodies corporate including the proposed loan exceeds 60 per cent of the aggregate of the paid-up capital and free reserves or 100 of the free reserves, whichever is higher, of the lending company.

5. Ensure that the notice of the special resolution contains the prescribed details, viz., the specific limits; the particulars of the body corporate to whom loan is proposed to be made; the purpose of the loan; and specific sources of funding and other such details.

6. Where any term loan is subsisting, obtain the prior approval of the concerned public financial institution in case any default was made in repayment of loan or payment of interest to the public financial institution as per the terms and conditions. .

7. If special resolution is passed for making the loans, then file it alongwith the explanatory statement in Form No. 23 with the Registrar within 30 days of its passing after paying the requisite fee prescribed under Schedule X to the Companies Act, 1956.

8. If the loan is to be secured by a charge registrable under the Companies Act, see that the provisions of Section 125 of the Act regarding ‘registration of charges’ are complied with by the borrowing company (that is ensure that the borrowing company has filed with the Registrar of Company a copy of the instrument of charge within 30 days after its creation).

9. In case borrowing company / companies is/ are a FERA company, ensure that the provisions of the Foreign Exchange Regulation Act, 1973 are duly complied with.

10. After advancing the loans the particulars of loans should be entered in the Register within 7 days. The Register should comply with requirements of Sec. 372-A (5) of the Act.

4. State the provisions of the Companies Act, 1956 regarding maintenance of Register of Loans. What particulars are required to be entered into such Register?

.9l.. Sub-section (5) to Sec. 372-A requires every lending company to maintain a register of loans showing the following particulars regarding every loan made, every guarantee given or every security provided by the lending company:

(i) the name of the borrowing body corporate;

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

(iii) the date of making the loan; and

(iv) the date of giving the guarantee or providing the security.

Particulars of every loan, guarantee or security must be entered in the register

within 7 days of making such loan or giving such guarantee or providing such security.