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 prohibition risks penal consequences where a subsidiary guarantees a holding company's loan by a financial institution
Whether a subsidiary's corporate guarantee for a loan taken by its holding company from a financial institution falls within the Section 185 prohibition and attendant penal consequences, given common directorship and that the statutory exemption for loans/guarantees from a holding company to its wholly owned subsidiary does not cover the reverse arrangement.