Misinterpreted

Apropos the report by Joyeeta Dasgupta (April 24), I would like to correct the interpretation of Sections 45-I and 45-S of the RBI Act about the reported hardship for individuals, firms and unincorporated bodies who allegedly would not be able to buy shares or securities even if they are engaged in a principal activity exempted from those covered under the prohibited category in the RBI (Amend) Ordinance, 1997. The correct interpretation for unincorporated firms is that if it is a trading/industrial firm, then it will not be covered by the seven categories of activities prohibited to give loans out of borrowed funds. However, the exception in Sec 45-I(c) read with Sec 45-S is that the aforesaid prohibition on acquisition of shares etc. or financing by way of loans does not apply to a firm if its principal business is trading or industry. Hence, an unincorporated firm would not have any difficulty in borrowing funds for its business and also for occasional lending. However, if it carries on as its principal activity, the business of receiving and giving loans, then it cannot do so.