Inter-corporate loans -Whether provisions of sub-section (1) have to be complied with by exempted companies on their ceasing to be so - Companies Law - No. 13(98)‑CL‑VI/ 67,

Circular : No. 13(98) ‑ CL ‑ VI/ 67, dated 19 ‑ 11 ‑ 1968. Subject:- Inter-corporate loans - Whether provisions of sub-section (1) have to be complied with by exempted companies on their ceasing to be so Any loan made, guarantee given or security provided by the above mentioned exempted companies would not require compliance of section 370(1) inasmuch as no special resolution or, as the case may be, prior approval of the Central Government/Company Law Board is necessary in such cases. If, however, by occurrence of certain events, i.e., when a private company becomes a public company, a banking company ceases to be a banking company, a holding company ceases to be such in relation to the other company and if the lending company ceases to be the managing agents or secretaries and treasurers, etc., of the borrowing company, the exemption provided in sub‑section (2) of section 370 ceases to be operative. The question, whether any loan made, guarantee given or security provided by such exempted companies earlier without compliance of section 370(1) would require passing of a special resolution, or, as the case may be, approval of the Central Government/Company Law Board for the continuance of such loans, guarantees or securities after the cessation of such exemption, has been under consideration of this Board for some time past. The Company Law Board has now been advised that the provisions of section 370(1) would become applicable to such transactions immediately after the lending company ceases to be an exempted company under the provisions of section 370(2) and, therefore, the compliance with the provisions of the said section would be required if such loans, guarantees and securities are continued after the exemption under section 370(2) ceases to exist. As it may not always be possible to comply with the requirements of section 370 immediately after the company ceases to be an exempted company within the meaning of sub‑section (2) of section 370, the Company Law Board has administratively decided that such lending companies should, within six months of the date of such cesser or within six months from the date of issue of this circular letter, whichever is later, comply with the requirements of section 370, i.e., pass the special resolution or, as the case may be, obtain extension of time or approval of the Central Government/Company Law Board for continuance of the loans, guarantees or security.