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Whether a corporate guarantee can be given to group company

PT (Finance Manager) (25 Points)

21 April 2014

Whether Corporate Guaranee can be given to Group Comany...Directors of Both companies are Same...

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7 Replies

Vandana J Doshi (Practising Company Secretary) (12562 Points)
Replied 22 April 2014

What is the status of both the companies...i.e. whether it is private or a public and whetehr it is an NBFC or not.....and accordingly you have check the applicability of section 185 and 186 of the new Act....

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PT (Finance Manager) (25 Points)
Replied 22 April 2014

what if...

1. borrower is unlisted public co and guarantor is pvt co..having same management...

2. borrower is private co and guarantor is pvt co..having same management...

3. borrower is private co and guarantor is unlisted public co..having same management...

Vandana J Doshi (Practising Company Secretary) (12562 Points)
Replied 22 April 2014

Hi,

in scenario one: you have to check whether the directors, by single or jointly, hold 25% or more shares of the unlisted public company.... if yes the same is restricted under section 185.... if no, then go for the same after checking for compliance u/s 186 of the Act

Scenario two and three are restricted by section 185.

Go through section 185 thoroughly and you will understand....

However, if the guarantor is a NBFC whose ordinary buiness is to provide loans or give guarantees or securities at an interest not less than the RBI rate, it is excluded from the purview of section 185.

Hopefully your query is resolved....if not revert here....

Regards

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Snehal (CS) (27 Points)
Replied 22 April 2014

In context of the above, if the unlisted public company is a subsidiary of a public company where the Directors hold more than 25% of shareholding?? Then also the same will be aplicable??

Vandana J Doshi (Practising Company Secretary) (12562 Points)
Replied 23 April 2014

Hi Snehal

could you please elaborate a bit on your question...

regards

Snehal (CS) (27 Points)
Replied 23 April 2014

Borrower is Private Co. (which is a subsdiary of a Public Company) and guarantor is pvt co..having same management... In this senario if the Directors hold more than 25% of shareholding of the holding company (not the subsidiary co which is availing guarantee) then also the guarantee can be given or not....