Loan Given By Holding Company To Subsidiary Company- Provisions

LOAN GIVEN BY HOLDING COMPANY TO SUBSIDIARY COMPANY

Section 185(3) of companies’ act, 2013 sates about exemptions from complying of sub section 1 and 2 of section 185 subject to conditions:

♦ Any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or

♦ Conditions: Loan must be utilised by the subsidiary Company for its principal business activities.

So, holding companies are not required to pass special resolution in general meeting for granting of loans to its wholly owned subsidiaries if above conditions are fulfilled.

REQUIREMENTS UNDER SECTION 186 OF COMPANIES ACT, 2013: –

1. APPROVAL OF BOARD AND PUBLIC FINANCIAL INSTITUTION: –

Pursuant to provisions of Section 186(5) of the Act, every Company shall take consent of all the directors present at the board meeting before making any investment, giving loans and guarantee and providing security. In case of Company has already taken loan etc., from any Public Financial Institutions, then it is mandatory to take prior approval from such Public Financial Institution.

Provided that prior approval of Public Financial Institution shall not be required where the aggregate loan, investment, guarantee and security proposed is within the limits as specified under section 186(2) and there is no default in repayment of loan or interest thereon to the Public Financials Institution as per the terms and conditions placed thereon.

2. APPROVAL FROM MEMBERS: –

Section 186(3), empowers a Company to give loan, guarantee or provide any security or acquisition beyond the limit but subject to prior approval of members by a special resolution passed at a general meeting.

Provided that where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company, the requirement of this sub-section shall not apply

DISCLOSURE OF PARTICULARS OF LOAN, GUARANTEE GIVEN AND SECURITY PROVIDED: –

Pursuant to provisions of Section 186(4) of the Act, the Company must disclose in the Financial Statement the full particulars of the loan given, investment made, guarantee given and security provided and utilization of the same.

The company shall disclose to the members in the financial statement the full particulars of the loans given, investment made or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilized by the recipient of the loan or guarantee or security. Such disclosure has to be in the Board’s Report also.

REGISTER TO BE MAINTAINED: –

Section 186(10) of the Act mandates every Company to maintain a register which shall contain particulars of loan or guarantee given or security provided or investment made. This register shall be opened for inspection and copies may be furnished to members who demand the same on payment of prescribed fee.

INTEREST ON LOAN: –

No company can give loans at a rate of interest lower than the prevailing yield of one year, three years, five years or ten-years Government Security closest to the tenor of the loan.

TREATMENT OF LOAN AS DEPOSITS UNDER ACCEPTANCE OF DEPOSITS RULES

As per definition of deposits under rule 2(c) “deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include –

(vi) any amount received by a company from any other company;

As per  Companies (Acceptance of Deposits) Amendment Rules, 2019 Dated 22nd January 2019  the companies are required to file return of deposit or particulars of transaction not considered as deposit or both in Form DPT-3 on or before the 30th day of June, of every year, with the Registrar along with the fee as provided in Companies (Registration Offices and Fees) Rules, 2014 and furnish the information contained therein as on the 31st day of March of that year duly audited by the auditor of the company.