Can a Company Give a Corporate Guarantee or Offer Security for a Loan Taken by Its Subsidiary or an Interested Company?

The ability of a company to give a corporate guarantee or offer security for a loan taken by its subsidiary, a company in which a director is interested, or a company with common management is governed by multiple provisions under the Companies Act, 2013, SEBI Regulations, and RBI Guidelines (for NBFCs and Banks).

1. Section 185 – Loans and Guarantees to Directors and Interested Companies

Section 185 of the Companies Act, 2013 places restrictions on a company granting loans, guarantees, or securities to certain entities.

🔴 Restricted Transactions: When Guarantees are NOT Allowed

A company cannot give a loan, guarantee, or security to:
❌ Any director of the company or its holding company.
❌ Any relative of a director.
❌ Any firm in which a director or relative is a partner.

🟢 Permitted Transactions: When Guarantees ARE Allowed

A company can provide a guarantee or security if:
✅ It is for a wholly-owned subsidiary (WOS).
✅ It is for a subsidiary company, provided the funds are used for the principal business.
✅ It is in the ordinary course of business (e.g., NBFCs and banks providing guarantees).
✅ It is approved by a special resolution in the general meeting (if given to a company in which a director is interested).

📌 Key Exemption: If the guarantee is given by a holding company for a loan taken by its wholly-owned subsidiary (WOS), no special resolution is required, but disclosure is necessary.

2. Section 186 – Inter-Corporate Loans and Guarantees

Under Section 186, a company can provide loans, guarantees, or security, but there are limits:

🔹 The total amount of loans, investments, guarantees, or security should not exceed 60% of the company’s paid-up share capital, free reserves, and securities premium or 100% of free reserves and securities premium, whichever is higher.
🔹 If the company exceeds this limit, it needs:
✔ Board approval 🏢
✔ Shareholder approval (by special resolution) 📜
✔ Disclosure in financial statements 📄

📌 Important: Section 186 does not apply to banking companies, insurance companies, or NBFCs engaged in lending as part of their business.

3. SEBI and RBI Regulations for Listed Companies and NBFCs

If the company is listed, SEBI (LODR) Regulations, 2015 apply:
✔ Audit Committee approval required for related party transactions (RPTs).
✔ Disclosure in financial statements.
✔ Independent director approval in some cases.

For NBFCs and companies regulated by RBI:
✔ RBI Guidelines impose additional disclosure and reporting requirements for guarantees.

4. Special Considerations for Bank Loans

When a bank asks for a corporate guarantee from the parent or sister company, the following must be ensured:
✅ The guarantee is compliant with Companies Act, 2013.
✅ The board has passed a resolution authorizing the guarantee.
✅ The company has sufficient net worth and reserves to issue the guarantee.
✅ The guarantee does not violate debt covenants or SEBI Listing Regulations.

Final Answer

✔ A company can provide a corporate guarantee or security for a subsidiary’s loan, subject to Section 185 & 186 compliance.
✔ If the guarantee is for a company where a director is interested, special resolution approval is required.
✔ Listed companies and NBFCs must comply with SEBI and RBI regulations.
✔ Guarantees should not exceed permissible financial limits, and adequate disclosures must be made.

📌 Recommendation: Before issuing a corporate guarantee, companies should seek legal and financial consultation to ensure compliance with all applicable laws.

Under Section 184(2) of the Companies Act, 2013, every director is required to disclose their interest in any company, body corporate, firm, or other entity in which they hold a stake. This is to ensure transparency and prevent conflicts of interest.

When is the disclosure required?

1. At the first Board Meeting after becoming a director.
2. At the first Board Meeting of every financial year.
3. Whenever there is any change in their interest or concern in an entity.

What needs to be disclosed?

A director must disclose their direct or indirect interest in:

• Any other company or body corporate in which they hold shares exceeding 2% of the paid-up share capital.
• Any firm, partnership, LLP, or entity where they are a partner, owner, or hold significant influence.
• Any contract or arrangement the company enters into with such an entity.

How should the disclosure be made?

• The disclosure must be in Form MBP-1 and submitted to the company.
• The company records it in the Register of Directors’ Interest.

What happens if a director fails to disclose?

If a director does not disclose their interest as required under Section 184(2), they may face:

• A fine of up to ₹1,00,000, or
• Imprisonment for up to 1 year, or both.

Key Takeaway: If you are a director in a company, always ensure timely disclosure of your interests to avoid legal consequences and maintain corporate governance compliance.

Even if the video recording of a board meeting held via video conferencing is lost due to technical issues, the meeting can still be considered valid. The key is whether proper records and documentation of the meeting are maintained. Here’s what you need to know:

1. Validity of the Meeting

• Meeting Minutes & Attendance:
  The validity of the meeting primarily depends on the accurate and complete minutes of the meeting and the attendance register. If these documents are properly maintained and reflect that all required directors participated and resolutions were passed, the meeting remains valid.

• Board Resolution Certification:
  A certificate from the Company Secretary or another authorized officer can be issued, stating that the meeting was duly held, even if the video recording is unavailable. This certificate serves as additional evidence that the meeting took place as per the legal requirements.

2. Remedies for Lost Recording

• Maintain Alternative Documentation:
  Ensure that all decisions, discussions, and resolutions are recorded in the meeting minutes. Supplement this with attendance records and any written communications exchanged during the meeting.

• Issue a Certificate:
  The company may issue a formal certificate by the Company Secretary confirming that the meeting was conducted properly in accordance with the Companies Act, 2013, and the Companies (Meetings of Board and its Powers) Rules, 2014.

• Backup Procedures:
  As a preventive measure, companies are encouraged to have robust IT systems and backup procedures in place to minimize the risk of losing the video recording in future meetings.

Conclusion

Even if technical issues prevent the retrieval of the video recording, the meeting remains valid if proper minutes and supporting documentation are maintained. The remedy lies in relying on these alternative records and, if necessary, obtaining a certificate from the Company Secretary attesting to the proper conduct of the meeting.