The query raised is whether the approval of shareholders in the general meeting through a special resolution under Section 370 (1B) of the Companies Act would be necessary for a loan given by a Government Company (say A. Co. Ltd.) to a Private Company (say B. Co. Ltd). The relevant facts are given below:
(i) The President of India holds 100% of the equity share capital of A. Co. Ltd.
(ii) A. Co. Ltd., holds 40% of the equity share capital of B. Co. Ltd. The remaining equity share capital is held equally by two other Government Companies.
(iii) A. Co. Ltd., and B. Co. Ltd., have only one common director, who is neither a Managing Director nor a Manager of both the companies.
Opinion February 3,1982
The Committee noted that the Department of Company Law & Administration have issued the following notification:-
“Notification No. G.S.R. 309, dated 20.2.1978.
In exercise of the powers conferred by sub-section (1) of Section 620 of the Companies Act, 1956 (1 of 1956), the Central Government hereby directs that section 370 of the said Act shall not apply to a Government Company in respect of which the entire paid-up capital is held by--
(a) the Central Government and its nominees, or
(b) a State Government and its nominees:
Provided that such company shall obtain the approval of the Central Government or the State Government, as the case may be, before making any loan or giving any guarantee or providing any security under the said Section 370.”
In view of the above, no special resolution is necessary and the Government Company should obtain the prior approval of the Central Government before granting the loan to the private company.
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