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Loan to subsidiary

Postby aniketcs » Fri Sep 07, 2007 4:10 pm

Dear Friends,

Please clarify the following:

Facts: Company X is JV of Company A (Indian Company with 49%) and Company B (Malaysian Company with 51%). Now Company X needs funds for its business purposes and Company A (Indian Company) is ready to grant unsecured loan to Company X. Further, Company X is deemed public limited Company by virtue of section 4(7).

My question is as under:

1) will this attract provision of section 58A as public deposit? According to me... it is not covered u/s 58A
2) Can this be treated as ICD u/s 372A?
3) will it be covered under section 295, since the directors are common in both companies.

Please friends... reply soon.
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Postby ruchitagor » Fri Sep 07, 2007 4:16 pm

Dear Aniket,

Sec 58A is not applicable, as "any amount given by one co. to another co." is considred as exempted deposit.

Sec 295 is applicable, as its not a loan given by holding to subsidiary as no such relation exists betwn Co. A and X and the directors are common.

It will anount to Intercorporate Loan and Sec 372A will be applicable.

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Postby aniketcs » Fri Sep 07, 2007 4:24 pm

Thanks Ruchita... but i am confused as how section 295 is applicable... as this is neither a loan to directors, a firm in which director is a partner nor to a private limited company in which director is director or member...... The Company is deemed public company by virtue of section 4(7). Than how section 295 is applicable?

More views are solicited.
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Postby srinivasaraghavan » Fri Sep 07, 2007 9:50 pm

Check up if clauses (d) and (e) of 295(1) are applicable.

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Postby aniketcs » Sat Sep 08, 2007 9:56 am

No srinivasan Sir, AS both the Companies are Indian Companies incorporated under Companies Act, 1956. None of them is body corporate
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Postby srinivasaraghavan » Sat Sep 08, 2007 10:17 am

Mr.Aniket,

Why are you saying that a body corporate does not include an Indian compnay? Please refer to section 2(7) of the Companies Act 1956.

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Postby aniketcs » Sat Sep 08, 2007 10:31 am

Srinivasan Sir,

I am sory i am wrong.. It body corporate is wider term. So accordingly clasue (e) of section 295 is applicable because the directors in Compay X is nominated directors of Company A and Company B.

But there is exception in section 295 for loan given by holding company to subsidiary, which applies to this matter

Now both the things are contarary... what should i conclude?
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Postby srinivasaraghavan » Sat Sep 08, 2007 10:38 am

Dear Mr.Aniket,

Section 295(2) will prevail over 295(1) due to the very wording. The holding company to subsidiary company loans will get covered by Section 372A. There again, loans etc. from holding company to its 100% subsidiary is exempt.

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Postby aniketcs » Sat Sep 08, 2007 10:42 am

So can i conclude that it is not covered under section 295 but under section 372A?
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Postby srinivasaraghavan » Sat Sep 08, 2007 11:00 am

But according to your query, the loan is given by company A which holds only 49% of company X. How is there the Holding company Subsidiary relationship between them?

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Postby neeraj.manchanda » Sat Sep 08, 2007 11:18 am

Dear Aniket,

Srinivasraghwan ji wants to say that Section 295 and section 372A both are applicable in your case.

Section 295----- as there is no holding subsi relation (less than 50% holding)
Section 372A---- as it is inter corporate loan and exemption is only for 100% subsidiary.

So, you have comply both the sections.

raghwan ji am I right????

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Postby srinivasaraghavan » Sat Sep 08, 2007 12:16 pm

Yes. Precisely, Manchandaji.

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