Subsidiary and holding company

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

04 August 2014 I WOULD LIKE TO KNOW WHETHER THE HOLDING COMPANY CAN KEEP ITS ASSETS AS GUARANTEE WHILE TAKING LOAN FOR ITS SUBSIDIARY COMPANY?

PRATIK AGRAWAL

PRATIK AGRAWAL (Expert)
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04 August 2014 Yes, if it is a fully owned company then no requirement needed, but if it is not, then i believe it has to take the approval of Minority interest aswell.

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Querist : Anonymous

Querist : Anonymous (Querist)

04 August 2014 BUT IF THE LOAN WAS TAKEN BEFORE THE AMENDMENT OF THE COMPANIES ACT 1956 AND AT THAT TIME THE HOLDING C0MPANY HAD 100 % STAKE IN THE SUBSIDIARY COMPANY, HOWEVER AFTER THE AMENDMENT OF THE ACT THE HOLDING COMPANY'S STAKE CONSEQUENTLY REDUCED TO 60%(DUE TO INCLUSION OF PREFERENCE SHARES IN CALCULATION OF HOLDING COMPANY'S STAKE IN SUBSIDIARY COMPANY ), THEN WHAT SHOULD THE HOLDING COMPANY DO NOW?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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26 July 2025 Can a holding company keep its assets as a guarantee for a loan taken for its subsidiary?
Yes, a holding company can offer its assets as security for a loan taken by its subsidiary, but subject to certain conditions under the Companies Act and depending on ownership percentage.
Your scenario — loan taken before the amendment when holding company had 100% stake, but now reduced to 60% due to preference shares inclusion:
Loan was validly taken earlier when holding company had 100% stake, so the security given then was not an issue.
After the amendment, the holding company’s stake is now 60%, i.e., it is still a majority shareholder but less than 100%.
The amendment (Companies Act, 2013 or amendments in the definition of "holding company" and related party transactions) has made the calculation stricter by including preference shares.
What should the holding company do now?
Since the loan and guarantee were created before the change in stake, the arrangement is generally grandfathered — meaning the company is not required to revoke or change the guarantee retrospectively.
However, going forward:
The holding company should ensure compliance with related party transaction provisions under the Companies Act, 2013 (Sections 185, 186, and related rules).
This may include obtaining approval from minority shareholders (if applicable) or passing resolutions to ratify the security interest.
It’s advisable to disclose this guarantee as part of the financial statements and notes to keep transparency.
The holding company should also check the loan agreement and bank terms for any requirement of fresh approvals due to change in ownership pattern.
Summary:
The loan and guarantee granted before the amendment remain valid.
The company should comply with current laws for related party transactions going forward.
If any fresh transactions or renewals happen, they must ensure proper approvals and disclosures.
Consult with legal and compliance experts to formalize approvals if needed.

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