Intercompany Revolving Loan Agreement Template for India

An intercompany revolving loan agreement is a flexible financial arrangement that allows related companies within a corporate group to provide ongoing funding support to each other. Unlike a traditional term loan, this facility permits multiple drawdowns and repayments within a predetermined credit limit, making it ideal for managing cash flow fluctuations and working capital requirements across group entities in India.

When do you need this document?

You need this agreement when your corporate group requires flexible internal funding arrangements. This typically occurs when a parent company or group treasury entity must provide ongoing financial support to subsidiaries facing seasonal cash flow variations or expansion requirements. The document is essential for establishing proper legal framework for transactions between holding companies and their subsidiaries, or between sister companies under common ownership. It's particularly valuable when your group operates multiple Indian entities requiring efficient cash pooling and internal funding mechanisms without the complexity of external banking arrangements.

Key legal considerations

Several critical clauses require careful attention in your intercompany revolving loan agreement. The facility terms must clearly specify the maximum credit limit, interest rate calculations, and repayment schedules to ensure enforceability. Default provisions should outline specific events triggering acceleration and remedies available to the lender company. Security arrangements, if any, must comply with corporate borrowing powers under the Companies Act 2013. Cross-default clauses linking the facility to other group obligations require careful drafting to avoid unintended consequences. Transfer pricing documentation is crucial to demonstrate arm's length pricing for tax compliance. The agreement must also address corporate governance requirements, including board approvals and related party transaction disclosures mandated by Indian corporate law.

Legal requirements in India

Your intercompany revolving loan agreement must comply with multiple regulatory frameworks in India. Under the Companies Act 2013, both lender and borrower companies must have adequate corporate borrowing and lending powers in their memorandum of association. Board resolutions approving the facility are mandatory, and related party transaction disclosures may be required depending on transaction values. RBI guidelines govern interest rate structures and reporting requirements for corporate lending arrangements. The Income Tax Act 1961 requires transfer pricing documentation to justify interest rates charged between related entities. FEMA compliance becomes necessary if any foreign company participates in the arrangement. Stamp duty obligations under state stamp acts must be fulfilled based on the agreement's execution location. Additionally, corporate governance norms require proper disclosure of intercompany transactions in financial statements and annual reports.