Section 372a of company act a querry
Pridee
(Querist) 05 April 2013
This query is : Resolved
Sir,
Does the section 372A of company Act applicable to the Private limited companies?
Does this section prohibits the Private limited company or its directors from giving loan or advance amount for a business purpose to the individual or sole proprietaryship firm? can any expert explain this section to me?
CA Ayush Agrawal
(Expert) 05 April 2013
No, Section 372A Exempts Private Companies.
But Check with Section 295 which is applicable.
R.V.RAO
(Expert) 03 February 2014
Sec 372A of Companies Act, 1956 is applicable only to public ltd. company and pvt ltd. co which is subsidiary of public company.
so pl. reply as to what type of pvt.ltd. co. you are referring to ?
depending on your reply,we respond further.
Pridee
(Querist) 03 February 2014
Sir, Thanks for your reply. This particular Pvt Ltd company is solely managed by a particular family. It has three directors –mother, son and daughter-in-law. It is not a finance company and doing the export of the chemicals. I have two questions.
1) Can this company give loan or advance amount for a business purpose to an individual or sole proprietary firm?
2) Can an individual invest jointly with this company to do business?
Please reply.
R.V.RAO
(Expert) 03 February 2014
as told by you,your company is not subsidiary to a public ltd. company. Hence sec 372A does not apply in your case.
but the new cos act 2013 lays down restrictions on loans to directors etc... see the new sec. 185 below (similar to old cos act -sec 295)
185. (1) Save as otherwise provided in this Act, no company shall, directly or indirectly,
advance any loan, including any loan represented by a book debt, to any of its directors or
to any other person in whom the director is interested or give any guarantee or provide any
security in connection with any loan taken by him or such other person:
Provided that nothing contained in this sub-section shall apply to—
(a) the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company to all its
employees; or
(ii) pursuant to any scheme approved by the members by a special
resolution; or
(b) a company which in the ordinary course of its business provides loans or
gives guarantees or securities for the due repayment of any loan and in respect of such.loans an interest is charged at a rate not less than the bank rate declared by the
Reserve Bank of India.
Explanation.—For the purposes of this section, the expression “to any other
person in whom director is interested” means—
(a) any director of the lending company, or of a company which is its
holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twentyfive
per cent. of the total voting power may be exercised or controlled by any
such director, or by two or more such directors, together; or
(e) any body corporate, the Board of directors, managing director or
manager, whereof is accustomed to act in accordance with the directions or
instructions of the Board, or of any director or directors, of the lending company.
(2) If any loan is advanced or a guarantee or security is given or provided in
contravention of the provisions of sub-section (1), the company shall be punishable with
fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh
rupees, and the director or the other person to whom any loan is advanced or guarantee or
security is given or provided in connection with any loan taken by him or the other person,
shall be punishable with imprisonment which may extend to six months or with fine which
shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.
then there is this new sec 186 in new cos act 2013 (similar to old sec.372A of the old act)
186. (1) Without prejudice to the provisions contained in this Act, a company shall
unless otherwise prescribed, make investment through not more than two layers of investment
companies:
Provided that the provisions of this sub-section shall not affect,—
(i) a company from acquiring any other company incorporated in a country
outside India if such other company has investment subsidiaries beyond two layers
as per the laws of such country;
(ii) a subsidiary company from having any investment subsidiary for the purposes
of meeting the requirements under any law or under any rule or regulation framed
under any law for the time being in force.
(2) No company shall directly or indirectly —
(a) give any loan to any person or other body corporate;
(b) give any guarantee or provide security in connection with a loan to any other
body corporate or person; and
Loan and........
After the new cos act 2013 come into force sec. 185 is made effective,but not sec 186 .hence lenders and borrowers in corporate sector raised a hue and cry .
so the present position is that the old sec 372A is allowed by Govt. as operational till new sec 186 is made effective.
in your case if the loan is to an individual or sole proprietorship,there is no restriction or problem .
But see that the ind./proprietor is not relative of your director(s),as amatter of abundant caution.
R.V.RAO
(Expert) 03 February 2014
about your second query,what form of investment ie you want your shares to transfer to him and ask him to pay for shares (at a premium)/u r looking for any pref.allotment of shares to him? be specific.i will answer you.
jointly with company means what? pl.be specific.
Pridee
(Querist) 15 February 2014
Sir,
Thanks for your reply and advice. I have one more query regarding the same subject.
One of the private limited companies which had business relationship with me has registered six different private limited companies with same door number and address (For example address: ABC P Ltd. Door no 405, XYZ street, Bangalore). The directors of all the six are common. RoC has allowed this registration.
Best of my knowledge company is an independent entity and one cannot register more than one company in one address.
1) Please advice if the above said company has acted contrary to the law?
2) If it is so then which section of which law prohibits the registration on more than one company with same door number and address?
3) If such registration is against the law then who is the competent authority to to act against such companies.
Please reply.
Advocate. Arunagiri
(Expert) 15 February 2014
Any number of companies can be registered in same address. So, rest of queries need not be addressed.
Pridee
(Querist) 15 February 2014
Thanks sir will you plz quote the section which allows such registration?
Advocate. Arunagiri
(Expert) 15 February 2014
There is no such section which prevents the same.
My client is having 10 companies in the same address.
R.V.RAO
(Expert) 15 February 2014
sri arunagiriji is absolutely right that any no.of cos.can be registered under one address.there is no bar.
but as long as the cos.with same address and common directors are compliant with laws of land,there is no problem .
otherwise remember, when one co.is under lens for being on the wrong side of law,all the common directors of all the cos. will face trouble.
for example when there is a TDS default by one co. all common directors of all cos,being same persons are liable for action.not only the common directors,but IT dept.may get doubts on all cos. with common directors.
