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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