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Whether corporate guarantee can be given by a holding company under Companies Act 2013


Rakesh Bharadwaj

2014-04-05

Sec 185 of the Companies Act 2013 puts some restictions on loans , guarantees to directors and persons in which directors are interested. My query is whether a Holding company can give a corporate guarantee for a loan taken by the Subsidiary company.

Kindly clarify the same in the following 3 different cases

1. There are no common directors in the both the companies

2. The Director is a member of the Subsidiary company 

3. Three directors of the holding company hold 25% voting rights in the subsidiary company 

 

Vedanta Deshika

2014-04-05

Indeed a very practical question you ahve asked Mr Rakesh.

Let me answer your queries 

1. In the first case, there is no bar on giving guarantee since there are no common directors between the boards of the two companies assuming BOD of subsidiary company are not accustomed to act in accordance with the instruction s of BOD of holding company 

2.  In this case, we have to see whether the subsidiary company is a Pvt company or not. Since 185 puts restrictions for loans and guarantees only to private companies in which Directors are members/directors. Assuming, the company is a Pvt company, guarantee can not be given.

3. As per Sec 185 , a company cannot give loans/guarantees to any body corporate in which the directors of the lending company ( individually or collectively) hold 25% or more voting rights. Hence, in this case Holding company is completely barred from giving corporta guarantee. 

 

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Vedanta Deshika

2014-04-05

More over Since section 186( relating to intercorporate investements) is now effective from April, 2014, the limits prescribed u/s 186 will have to be followed for all new investments , guarantees, security.

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