SECTION 185

[SHASHI BALA]

Querry :

CORPORATE GUARANTEE GIVEN BY SUBSIDARY COMPANY W.R.T. THE LOAN GIVEN TO ITS HOLDING COMPANY BY SBI CAP FINANCIAL INSTITUTION. COMMON DIRECTORS IN BOTH THE COMPANIES.

HOWEVER LOANS BY HOLDING TO ITS WHOLLY OWNED SUBSIDIARY IS EXEMPT BUT THIS CASE IS OPPOSITE.

IS THERE ANY WAY OUT TO ESCAPE FROM THE PENAL CONSEQUENCES OF SECTION 185 ?

AI Summary

Corporate Guarantee Dilemma: Subsidiary Guarantees Loan to Holding Company; Seeking Clarity on Section 185 Compliance. A query was raised regarding a corporate guarantee provided by a subsidiary company for a loan given to its holding company by a financial institution. Both companies share common directors. While loans from a holding company to its wholly-owned subsidiary are exempt from penalties under Section 185, this situation is reversed. The inquiry seeks guidance on avoiding penal consequences under the relevant corporate law provisions.