Co. X Ltd.(unlisted) has given a guarantee on behalf of Co. Y Pvt. Ltd. (a joint
venture of Co. X - 45% and Co. Z - 55%, foreign listed co.)in favour of a Bank.
The Charge in respect of the loan has been filed with ROC.
Co. Y Pvt ltd is deemed to be a subsidiary of a public co by virtue of section
4(7).
Later on, Mr. A a director of Co. Y was also appointed as a director in Co. X.
Please tell me whether the provisions of Scetion 295 will be hit? It states that
the lending company cannot give guarantee or provide any security in connection
with a loan made by any other person to a private co of which any such director
is a director or member without previous approval of CG.
Kindly advise. What action can be taken now? Thanks
Preeti Gandhi
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Section 295
A private co. which is subsidiary of a public co. is considered as a public co. as per Sec.3(1)(iv)(c). The only difference is that such co. can retain basic characteristics of a private co. as per Sec.3(1)(iii) in its Articles - as decided by CLB in the case of Hillcrest Realty in 2006. Section 295 is applicable for guarantees given on behalf of a private co. Since Y Pvt Ltd is a public co. for the purposes of the Act, Sec.295 will not apply in your case.
There are 2 Public Ltd (X & Y )companies with Common promoters. Co. X is giving a coporate guarantee for a loan being borrowed by Co. Y against a property owned by Co. Y.
Does section 295 apply in cases where 1 public ltd co. is becoming a co borrower / giving corporate guarantee for another public ltd co. & promoters in both the companies are common.
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