MCA issues clarification on section 185 of the Companies Act 2013
MCA after receiving 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 372A of the Companies Act, 1956, has come out with necessary clarification vide circular No. 3/2014 dated 14th Feb 2014, which will definitely provide much needed relief to corporates. It is clarified that in order to maintain harmony with regard to applicability of Section 372A of the Companies Act, 1956 till the same is repealed and Section 186 of the Companies Act, 2013 is notified, any guarantee given or security provided by a holding company in respect of loans made by a bank or financial institution to its wholly owned subsidiary company, exemption as provided in clause (d) of sub-section (8) of Section 372A of the Companies Act, 1956 shall be applicable. This clarification will, however, be applicable to cases where loans so obtained are exclusively utilized by the subsidiary for its principal business activities.
It is noteworthy to mention that the relief is not given with respect to loan given by holding Company to its wholly owned subsidiaries.