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Bank guarantee by a public limited company for a private limited company in which the directors are interested

18 March 2018

can a public limited company give bank guarantee for a private limited company in which the directors are interested( the director of the public limited company is also the director of private limited company) . Whether the law allows this or not?

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10 Replies

SURYA PRAKASH MISHRA (student) (44 Points)
Replied 18 March 2018

As per sec. 185 of Companies Act, no company can give any loan or guarantee to any directors or any other person in whom directors is interested.

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Prachi Aneja (58 Points)
Replied 18 March 2018

But in sec 185 it is written that save as otherwise provided in this act...what does thid phrase means?

SURYA PRAKASH MISHRA (student) (44 Points)
Replied 18 March 2018

save as otherwise provided in this act means to keep applicability of any other provision on the same subject unaffected or the provision of this act shall have effect notwithstanding to the contrary contained in the MOA or AOA of company.

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Prachi Aneja (58 Points)
Replied 18 March 2018

If it means this then sec 186 allows for bank guarantee by a public limited company for pvt co

SURYA PRAKASH MISHRA (student) (44 Points)
Replied 18 March 2018

yes if it is in normal course of business

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Prachi Aneja (58 Points)
Replied 18 March 2018

[[2] No company shall directly or indirectly —
[a] give any loan to any person or other body corporate;
[b] give any guarantee or provide security in connection with a loan to any other body corporate or person; and
[c] acquire by way of subscripttion, purchase or otherwise, the securities of any other body corporate,

exceeding sixty per cent. of its paid-up share capital, free reserves and securities premium account or one hundred per cent. of its free reserves and securities premium account, whichever is more.

Padmanabhan (Student) (1321 Points)
Replied 18 March 2018

By applying Harmonious interpretation:
Specific section prevails over general.
Here section 185 is specific and 186 is general.
In this case the public company cannot give guarantee to a private company.

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Prachi Aneja (58 Points)
Replied 18 March 2018

https://www.google.co.in/amp/s/www.caclubindia.com/amp/articles/critical-analysis-of-section-185-and-section-186-of-the-companies-act-2013-25429.asp

Please read this once. ☺

Vinayak Mishra (192 Points)
Replied 19 March 2018

After the. CA amendment act, 2017 public company can give guarantee in respect of loan of private companies in which director director of former company is interested provided :
Special resolution
Use of such loan for business purposes

Thanks & regards

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