General Circular
No 03/2014, No.1/12/2013-CL.V, dated 14th
February, 2014
Clarification
with regard to Section 185 of the Companies Act, 2013
To,
All
Regional Directors,
All
Registrar of Companies,
All
Stakeholders
This Ministry
has received number of representations on the applicability of Section 185 of
the Companies Act, 2013 with reference to loans made,
guarantee given or security provided under Section 372A
of the Companies Act, 1956. The issue has been examined with reference to
applicability of Section 372A of the Companies Act, 1956 vis-a-vis Section 185
of the Companies Act, 2013. Section 372A of the Companies Act, 1956,
specifically exempts any loans made, any guarantee given or security provided
or any investment made by a holding company to its
wholly owned subsidiary. Whereas, Section 185 of the Companies Act, 2013
prohibits guarantee given or any security provided by a holding company in
respect of any loan taken by its subsidiary company except in the ordinary
course of business.
2. In order to maintain harmony with
regard to applicability of Section 372A of the Companies Act, 1956 till the
same is repealed and Section 185 of the Companies Act, 2013 is notified, it is
hereby clarified that any guarantee given or security provided by a holding
company in respect of loans made by a bank or financial institution to its
subsidiary company, exemption as provided in clause (d) of sub-section (8) of
Section 372A of the Companies Act, 1956 shall be applicable till Section 186 of
the Companies Act, 2013 is notified. This
clarification will, however, be applicable to cases where loans so obtained are
exclusively utilized by the subsidiary for its principal business activities.
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