Loan by Pvt Limited to Firm

[DK AGGARWAL]

Dear Sir

Clarification-Company Law

1-Can a Private Limited company give short term LOAN on Interest to a relative firm having common Directors and Partners or vice versa. Can a firm hold/purchase the shares of a private ltd in the above case.

2---Further the relative firm as above is holding few shares less then 2% of the above private limited company. Will it make any difference as loan given or received as to a share holder firm or company.

[DR.MARIAPPAN GOVINDARAJAN]

In my view NO.

AI Summary

Related party loan restrictions bar short term interest loans between a private company and a related firm, regardless of minimal shareholding.
Respondent advised that a private limited company making a short term interest bearing loan to a related firm with common directors or partners, or vice versa, is not permissible in the circumstances described; a related firm's minority holding of less than two percent does not change that position.