Guarantee for loan taken by managing direcotr

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Toni Das

30 Points Posted on 19 October 2016

Dear Learned Members,

Please provide your valuable comments for the following:

The Managing Director of ABC Private Limited has availed a house loan for INR 1.50 Crores from a nationalized bank. Now, the bank has asked for a board resolution saying that the Company needs to provide guarantee for the loan taken by the Managing Director.

Hence, does such transaction attract Section 185 of the Companies Act, 2013?

Replies (2)

CA. Anaadi Mishra

Chartered Accountant

59 Points Posted on 19 October 2016

As you have mentioned that the company is a private concern, prima facie, Sec 185 will not apply if all conditions are satisfied
1. No body corporate has invested in share capital of ABC pvt ltd
2. Borrowings from bank, FI, body corp is less than 2 times of paid up capital (or 50 crore) whichever is lower.
3. The co has no default in repayment of its borrowings shown in Financial statements.

If any of the above condition fails, Sec 185 will apply where your Company shall be prohibited to give any guarantee in connection with a loan taken by MD
(subject to following exception)

Exception:
The company as a part of condition of service to "ALL" employees, gives guarantee

Jatin Bajaj

1920 Points Posted on 21 October 2016

According to section 185 of the Companies Act 2013, if your private Company has holding Company, then Such Holding Company shall provide gurantee or security in respect of loan made by bank or financial institution to such private Company. In this case section 185 will not be applicable.

But if gurantee in form of Board Resolution is not provided , then section 185 will be applicable.

if borrowings from bank or public financial institution is less than 50 crores or twice paid up capital whichever is less, then also section 185 will not be applicable