Loan [Resolved] | Corporate Law #1678989

This query is : Resolved

Amit Verma (Querist)

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 ?

Aashish Jain

Aashish Jain (Expert)

27 March 2014 Kindly share the details such as nature of companies and shareholding of companies. ..

Amit Verma

Amit Verma (Querist)

28 March 2014 COMPANY A MANUFACTURING COMPANY AND B IS PRIVATE LIMITED COMPANY. DIRECTOR HOLD MAJOR SHAREHOLDING IN BOTH COMPANIES.

Aashish Jain

Aashish Jain (Expert)

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.

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