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Circular No 03/2014, Dated:14/2/2014
Subject: Clarification with
regard toSection 185 of the Companies Act,2013.
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 Section185 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.
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the Companies Act, 1956 till the same is repealed and Section 185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 Section186 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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