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Personal loan by Pvt. ltd. co.

(Querist) 04 June 2009 This query is : Resolved 
Company Name: AGPL Pvt. Ltd.(AGPL)

Background of the case: AGPL was incorporated on 20.01.2007. The main object of the company is trading of various kinds of goods. The company has, in the financial year 2008-2009, given unsecured loans to 3 individuals for Rs. 500,000/- each at an interest of 12% p.a. AGPL is neither an NBFC nor did it apply for the registration in the F.Y. 08-09.


1. Whether there is any restriction under Companies Act or any other law for the time being in force whereby a private limited company is restricted from giving personal loan as stated above.

2. If there is a restriction, under which statute is it

A V Vishal (Expert) 04 June 2009
Dear Ghosh,

Kindly clarify to whom were the personal loans given and the purpose. If it is to outsiders, then the company is barred under Reserve Bank rules since it is not a NBFC and under company act if the loan is prejudicial to the interest of the company and is unsecured, then it is barred from lending. However, if the loan is given to any employee/director then there is no specific bar since the same is classified under Loans & advances to employees/directors.
Rajarshi Ghosh (Querist) 04 June 2009
Thanks Mr. Vishal. the loans were given to outsiders, having no link to the company.

However I need to know the RBI Rule under wich the transaction becomes void. If you please help me in this matter.


R. Ghosh
A V Vishal (Expert) 04 June 2009
Dear Ghosh,

There is no need of any rule since the company ab initio has commited default by advancing a loan to a third party which is un related or unconnected with their business. The said company has flouted rules of a NBFC.
Dhrumil (Expert) 04 June 2009
Private companies are exempted under section 295 of the companies act. private company can give loan to other person.
Rajeev Chaturvedi (Expert) 05 June 2009
Kindly clarify to whom were the personal loans given and the purpose. there is no restriction that a private company can not give the loan, under section to 295 of the act clarify that a private company can give the loan becasue the main business of the company is trading so there is not need to registration with RBI.if the proportion of income from interest more than main object income there is restraction to carry on this busines as per RBI regulation

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