Applicability of section 185

This query is : Resolved

manikanta (Querist)
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20 August 2018 There is a partnership firm "ABC" with partners Mr.A, Mr.B and M/s.XYZ Private Limited (with 2 Directors i.e.Mr.X and Mr.Y). ABC has availed a loan with a Nationalised Bank. Since it is a partnership firm all the partners has to extend Guarantee to Bank (including XYZ Pvt Limited). Company secretary of XYZ pvt limited has informed that as per section 185 they cant extend guarantee. But as per rules of Bank, XYZ pvt ltd has to extend guarantee.

Please confirm whether XYZ pvt ltd can extend guarantee to company as per Section185 of Companies act 2013.

Other Information:
a) No Body corporate is holding any shares in XYZ Pvt ltd

b) No Borrowings from Bank for XYZ ltd (except unsecured loans from Directors)

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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21 August 2018 if the lending company is a private company then with effect from 5th June 2015 it can give loan to
another private company even if its director is the director or member of the recipient company
if:
o In the lending company’s capital no other body corporate has invested any money i.e.,
it’s shareholder does not include any body corporate;
o If the borrowings of the lending company from banks or financial institutions or
anybody corporate is less than twice its paid up capital or Rs. 50 crores, whichever is
lower; and
o Lending company is not in default in repayment of such borrowings subsisting at the
time of giving such loan.