Loan
This query is : Resolved
27 March 2014
MR. X DIRECTOR IN BOTH A AND B COMPANY. COMPANY A LOAN GIVEN TO COMPANY B. TRANSACTION IS VALIED AS PER NEW COMPANIES ACT, 2013 ?
27 March 2014
Kindly share the details such as nature of companies and shareholding of companies. ..
28 March 2014
COMPANY A MANUFACTURING COMPANY AND B IS PRIVATE LIMITED COMPANY. DIRECTOR HOLD MAJOR SHAREHOLDING IN BOTH COMPANIES.
28 March 2014
Hi Amit,
Initially your case can be seen as below:
1. The Lending company can be a public or private company since Section 185 is applicable to both the companies.
2. Since in our case, B is a private limited company and director of A ltd is also a Director of B pvt Ltd, the loan transaction will be attracted by Clause (c) to explanation to Section 185(1).
3. Further director of A ltd also holds shares in B ltd again the same clause will be applicable as mentioned above.
To conclude, Loan from A ltd to B Pvt Ltd is prohibited under Section 185.
Scenario from April 1, 2014 will be as under:
1. Loan/guarantee/security from holding company to wholly owned subsidiary is exempted under Rule 10(1) of Companies (Meeting of Board and its power) Rules, 2014.
2. Guarantee/Security given by holding company to banks and financial institution for the loan borrowed by subsidiary company is exempted under Rule 10
(2) of the said rules.
If B pvt Ltd is a subsidiary company of A Ltd, then the loan will not be prohibited from April 1, 2014. Prior to April 1, 2014 it is prohibited since there was no exemption prior to this date.
Initially your case can be seen as below:
1. The Lending company can be a public or private company since Section 185 is applicable to both the companies.
2. Since in our case, B is a private limited company and director of A ltd is also a Director of B pvt Ltd, the loan transaction will be attracted by Clause (c) to explanation to Section 185(1).
3. Further director of A ltd also holds shares in B ltd again the same clause will be applicable as mentioned above.
To conclude, Loan from A ltd to B Pvt Ltd is prohibited under Section 185.
Scenario from April 1, 2014 will be as under:
1. Loan/guarantee/security from holding company to wholly owned subsidiary is exempted under Rule 10(1) of Companies (Meeting of Board and its power) Rules, 2014.
2. Guarantee/Security given by holding company to banks and financial institution for the loan borrowed by subsidiary company is exempted under Rule 10
(2) of the said rules.
If B pvt Ltd is a subsidiary company of A Ltd, then the loan will not be prohibited from April 1, 2014. Prior to April 1, 2014 it is prohibited since there was no exemption prior to this date.
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