MCA Clarification on applicability of Section 185 of Companies Act 2013 and Section 372A of the Companies Act, 1956
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CLR Editorial Notes: After some of the Companies Act 2013 Sections were notified, the Ministry of Corporate Affairs received several suggestions and representations regarding the notification of Section 185 of Companies Act 2013 (which deals with loans to Directors – and which corresponds to Section 295 of the Companies Act, 1956). This comes at a time when Section 186 of the Companies Act, 2013 is yet to be notified. Due to this, there was a lot of confusion in the industry whether a Company can give loans / acquire shares in its wholly owned subsidiaries having common directors.
MCA has issued a clarification that Section 372A of the Companies Act 1956 (which deals with inter-corporate loans) will continue to remain in force till such time Section 186 of the new Companies Act 2013 is notified. This will mean that a Company may give loans to its wholly owned subsidiaries even where directorships are common.
The text of the Notification is as follows :-
General Circular 18/2013,
Sub: – Clarification with regard to applicability of provision of Section 372A of the Companies Act, 1956.
This Ministry has received number of representations consequent upon notifying Section 185 of the Companies Act, 2013 dealing with loans to directors which is corresponding to Section 295 of the Companies Act, 1956. Section 186 of the Companies Act, 2013 is yet to be notified.
It is clarified that Section 372A of the Companies Act, 1956 dealing with inter-corporate loanscontinue to remain in force till section 186. of the Companies Act, 2013 is notified.
This issues with the approval of competent authority