Loan given to holding co. section 185

Save Share

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

05 January 2015 1) Holding company is unlisted public company
2) Subsidiary is a private limited company
3) one director is common

Subsidiary company gave loan to its holding company whether section 185 of companies Act attracts and prohibits such transaction.

Mohit Singla

Mohit Singla (Expert)
Follow

05 January 2015 It is specially mentioned in the section 185 that loan and guarantee can not be given where director is common in both the companies.

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2015 But sir,
Section 185 Exempts loan between Holding Company and Subsidiary Company.
(1) Any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding co in respect of any loan made to its wholly owned subsidiary co is exempted from the requirements under this section; and
(2) Any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company is exempted from the requirements under this section:
Provided that loans made under sub-rule (1) and (2) are utilized by the subsidiary company for its principle business activities.

Mohit Singla

Mohit Singla (Expert)
Follow

07 January 2015 As per your reply,
First it is possible in case of wholly owned companies.
Second, if the director is common(as per your query) then the above is not possible.

under section 185, private limited companies has been specifically excluded.

The only way to give loan to subsidiary is that director has to resign from one of company.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now