Clarification – On Applicability of Sec 185 of CA 2013

MCA vide its General Circular No. 03/2014 (read here) has issued clarification on the applicability of Section ca185 of Companies Act, 2013 and Section 372A of Companies Act, 1956. The clarification is with respect to giving of guarantee or security by a holding company for a loan made to its wholly owned subsidiary company. The confusion arose because Section 185(notified) doesn’t permit the same, whereas Section 372A allows the same. Therefore, the Ministry has taken a stand on it and has sustained the exemption given u/s 372A(8)(d) and has provided that a holding company can give guarantee or security for a loan made by a bank or a financial institution to its wholly owned subsidiary, however the loans can only be used by the subsidiary for its principal business activities.