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Charges

Sarika Agarwal (Service) (151 Points)

19 January 2011

I have query regarding Creation of Charge:-

Company ABC - Deem Public Limited Company ie Subsidiary of Public Limited Company.

In ABC Company............... A,B, C are Directors

Directors A,B & C and their relative took a loan from Cosmos Bank for their personal use. Here Company ABC is giving guarantee to their loan. Bank insist to create charge for guarantee? Is it required to register charge on the Company.

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4 Replies

Jaideep (Service) (1368 Points)
Replied 19 January 2011

Dear Sarika

As the ABC Company is subsidary of Public Company, above transaction is in violation with section 295, Company should obtain prior CG approval.

Consequenses if loan not repaid;

Every person who is knowingly a party to whom the loan is made or who has taken the loan in respect of which the guarantee is given orthe security is provided, shall be punishable either with fine which may extend to five thousand rupees or with simple imprisonment for a term which may extend to six months.

Regards

Jaideep Pandya

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Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 19 January 2011

Jaideep is right. CG approval is required as provided in section 295 of the Companies Act, 1956.

Sarika Agarwal (Service) (151 Points)
Replied 19 January 2011

Appreciats your opinion. But when i was surfing through various site i found the following write up..

There must be an specific asset for which form 8 should be filed.

In Corporate guarantee, there is no specific assets as it is mostly given on networth basis.

In bank guarantee, the company is giving money. Now ask one question to yourself that whether MONEY is as ASSET for the Purpose of CHARGE u/s 125 ? In my opinion, the answer is NO.. so there is no charge on asset & form 8 is not required to be filed. Lets assume if the answer is yes, it will become pledge of Money, thus, then also it is not required to be registered as per Sec125.

I think you get my point that THERE MUST BE AN SPECIFIC ASSET GIVEN UNDER HYPOTHECATION FOR THE PURPOSE OF APPLICABILITY OF SECTION 125.

My question is :- is the above write up applicable in my case.. or it is only appliable to private company/