Clarification with regard to Section 185 of the Companies Act, 2013.(General Circular No. 03/2O14)

General Circular No. 03/2O14

 No.1/12/2013-CL.V

Government of India

Ministry of Corporate Affairs 

"A" Wing, 5th Floor, Shastri Bhawan

Dr. R.P. Road, New Delhi 110001

Date 14th Feb, 2O14

To

All Regional Directors, 

All Registrar of Companies,

All Stakeholders

subject: Clarification with regard to Section 185 of the Companies Act, 2013.

Sir,

This ministry hos received number of representations on the applicability of Section 185 of the companies Act, 2013 with reference to loans made, guarantee given or security provided under Section 3724 of the Companies Act,1956. The issue has been examined with reference to applicability of Section 372A of the Companies Act, 1956 vis-d-vis Section 185 of the Companies Act. 2013. Section 372A of the Companies' Act,

1956, specifically exempts any loons mode, any guarantee given or security provided or any investment mode by d holding company to its wholly owned subsidiary. Whereas.

Section 185 of the companies Act, 2013 prohibits guarantee given or any security provided by a holding company to^ respect of any loon taken by its subsidiary company except in the ordinary course of business.

2. In order. to maintain harmony with regard to applicability of Section 372A of the.

Companies Act, 1956 rill the some is repealed and Section 185 of the Companies Act,

2013 is notified, it is hereby clarified that any guarantee given or security Provided by a holding company in respect of loons mode by a bank or financial institution to its subsidiary company, exemption as provided in clause (d) of sub-section (8) of section 372A of the. companies Act, 1956 shall be applicable till section 186 of this Companies.

Act, 2013 is notified. This clarification will, however, be applicable to cases where longs so obtained ore exclusively utilized by the subsidiary for its principal business activities,

Yours faithfully.

(KMS Narayanan)

Assistant Director(Policy)

Copy to:-

1. Guard File