Inter-corporate loans and investments under section 372A - Companies Law - CIRCULAR NO. 8/99

CIRCULAR NO. 8/99 [F.NO. 5/17/99-CL-V], DATED 4-6-1999, ISSUED BY THE DEPARTMENT OF COMPANY AFFAIRS Subject:- Inter-corporate loans and investments under section 372A 1. The provisions in the Companies Act, 1956 relating to inter-corporate investments, loans and guarantees have been recently liberalised by the Government through Companies (Amendment) Act, 1999. However, apprehensions have been expressed in some quarters with regard to possible misuse of these provisions by companies. I shall, therefore, be grateful if the Chambers could draw the attention of their constituents to the following: (i) The companies are expected to obtain the approval for making investments into securities or grant of loan to other companies of amounts which are linked with company's available financial resources and the resolution for investment much beyond the net worth should not be passed by the companies. (ii) The companies should specifically indicate in the explanatory statement to the resolution, the specific securities in which it is proposed to invest the amount. En-block approval should normally be avoided (except in the case of guarantee where the resolution can indicate an amount on annual basis). 2. If above broad parameters are not complied, the Government will be constrained to take suitable action against those who contravene these.