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Applicability of sec 185 & 186 of companies act

DEEPAK (ppp) (40 Points)

25 September 2014

Dear All Respected Members

If today I don't have the violation of Section 185 & 186 in terms of Guarantee provided by one of the Group Company in terms of Director ship andbased on that that company extended the guanratee of 40 Cr to one of the group Company.But in future if I add one of the Common director in the Main Company ( which extended the said guarnatee) who is holding the common directorship in both the caompanies and falls into the category of Violation u/s 185 then the said Guarnatee extended would be treated as Void or else????? Please advise.

Thanks in advance

Regards

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CA Nimesh Maheshwari (Commercial Manager) (334 Points)
Replied 25 September 2014

A company can issue a corporate guarantee to other company subject to provisions of Section 185.

Further, if two companies do not have a common diretor, section 185 is not operative.

Suppose there are two Companies - A & B. Company "B" is in need of a corporate guarantee and Company "A" is willing to extend a corporate guarantee. In case company "A" issues a corporate guarantee for company "B" and later the director in Company "A" becomes a director in Company "B" too. The director will have to show his interest in various entities in the very next board meeting post his appointment. Also, the guarantee will remain effective for the remaining period and no violation of section 185 would be treated. However, the Company "A" and "Company B" will not be able to give corporate guarantees for each other till the period such director remains a director in both the companies.

Any other views on the matter are welcome on the matter.

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