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Sec. 372 A


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Sec. 372A. I presented during 65th Batch of GMCS course in The Institute of Chartered Accountants of India

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Sec. 372 A

  1. 2. Sec. 372A Created by R. SHIVA SHANKARA Companies Act, 1956
  2. 3. SCOPE <ul><li>Making a loan </li></ul><ul><li>Acquiring the securities </li></ul><ul><li>Giving any guarantee or providing any securities </li></ul>
  3. 4. Higher Level <ul><li>Lower Level </li></ul>
  4. 5. Ceiling Limit <ul><li>60% of the aggregate of paid-up share capital & Free Reserve </li></ul><ul><li>OR </li></ul><ul><li>100% of free reserves of the company </li></ul><ul><ul><ul><li>Higher of the above </li></ul></ul></ul>
  5. 6. Lower Level <ul><li>Approval of the Board </li></ul><ul><ul><ul><li>Prior approval </li></ul></ul></ul><ul><ul><ul><li>Resolution passed at a Board Meeting </li></ul></ul></ul><ul><ul><ul><li>Can not be delegated </li></ul></ul></ul><ul><ul><ul><li>Unanimous approval </li></ul></ul></ul>
  6. 7. Higher Level <ul><li>Special resolution in General Meeting </li></ul>
  7. 8. Special Resolution AGM EGM Postal Ballet
  8. 9. Notice of Special Resolution <ul><li>Specific limit </li></ul><ul><li>Particulars of other Body Corporate </li></ul><ul><li>Purpose </li></ul><ul><li>Specific Sources of Funding </li></ul><ul><li>Other relevant details </li></ul>
  9. 10. No Blanket Permission <ul><li>Notice must specify the specific securities in which the investments are proposed to be made. </li></ul><ul><li>Department Circular No. 8/99 dt. 04.06.1999 </li></ul>
  10. 11. Relaxation <ul><li>Board may give guarantee in excess of ceiling limit without passing a special resolution subject to following conditions. </li></ul><ul><ul><ul><li>Within 12 months from the date of guarantee </li></ul></ul></ul><ul><ul><ul><li>Immediate next AGM or GM </li></ul></ul></ul><ul><ul><ul><li>Whichever is earlier </li></ul></ul></ul>
  11. 12. Other Conditions <ul><li>No default u/s. 58A of Companies Act, 1956 </li></ul><ul><li>Rate of Interest shall not be less than prevailing bank rate. </li></ul>
  12. 13. No approval from Financial Institutions <ul><li>The aggregate of loan, investment, guarantee or security already made & proposed does not exceed 60% of paid-up share capital & free reserve </li></ul><ul><li>There is no default in repayment of loan principle and interest. </li></ul>
  13. 14. Not Applicable to <ul><li>Banking, Insurance & investment company </li></ul><ul><li>Housing finance company </li></ul><ul><li>Financing industrial enterprises or infrastructure facilities. </li></ul><ul><li>Private company which is not subsidiary or holding company of public company. </li></ul><ul><li>Right issue </li></ul><ul><li>Loan or guarantee made by holding company to 100% subsidiary company </li></ul><ul><li>Acquisition of shares of subsidiary company </li></ul>
  14. 15. Register u/s. 372A <ul><li>Name of body corporate </li></ul><ul><li>Amount, Date, Terms & Purpose </li></ul><ul><li>Time limit – within 7 days </li></ul><ul><li>Place – Registered office </li></ul><ul><li>Rights of Members – inspect & extracts </li></ul><ul><li>Consequences of default – Rs. 5,000/- and Rs. 500/- per day </li></ul>
  15. 16. Non-Compliances of Sec. 372A <ul><li>Transaction void & ineffective. </li></ul><ul><li>Repayment of the loan. </li></ul><ul><li>Company & every officer in default shall be punishable with </li></ul><ul><ul><ul><li>Fine up to Rs. 50,000/- OR </li></ul></ul></ul><ul><ul><ul><li>Imprisonment up to 2 years OR </li></ul></ul></ul><ul><ul><ul><li>both </li></ul></ul></ul>
  16. 17. THANK YOU <ul><li>R. SHIVA SHANKARA </li></ul>