To

(Company name and address)

Respected Sirs/Madams,
Sub: Legal opinion on providing corporate guarantee by public company to a
private company pursuant to Section 185 and Section 186 of the Companies
Act, 2013, read with the Companies (Meetings of Board and its Powers)
Rules, 2014.

The following specific query were raised to us for our opinion and
suggestion:
Whether a corporate guarantee can be given by a public
company on behalf of loan taken by a private company from any
Bank/Financial Institution?

After considering the aforementioned question and in the light of the

provisions of Section185 and Section 186 of the Companies Act,2013 read
with the Companies (Meetings of Board and its Powers) Rules, 2014, we
opine as under:

Relevant Extract of Section 185(2) of Companies Act, 2013 read as

under:-

(2) A company may advance any loan including any loan represented
by a book debt, or give any guarantee or provide any security in
connection with any loan taken by any person in whom any of the
director of the company is interested, subject to the condition that—

(a) a special resolution is passed by the company in general meeting:

Provided that the explanatory statement to the notice for the relevant
general meeting shall disclose the full particulars of the loans given, or
guarantee given or security provided and the purpose for which the
loan or guarantee or security is proposed to be utilised by the recipient
of the loan or guarantee or security and any other relevant fact; and

(b) the loans are utilised by the borrowing company for its principal
business activities.
For the purposes of this sub-section, the expression "any person in whom any
of the director of the company is interested" means—

(a) any private company of which any such director is a director or

member;

(b) any body corporate at a general meeting of which not less than
twenty-five per cent. of the total voting power may be exercised or
controlled by any such director, or by two or more such directors,
together; or

(c) any body corporate, the Board of directors, managing director or

manager, whereof is accustomed to act in accordance with the
directions or instructions of the Board, or of any director or directors, of
the lending company.

The aforesaid provisions allow any Company (Public or Private) to advance

any loan/ give any guarantee/ provide any security in connection with any
loan taken by “any person in whom any of the director of the company is
interested”.
In our case, the expression "any person in whom any of the director of the
company is interested" means and includes any private company of which
any such director (i,e director of the company availing
loans/guarantees/securities) is a director or member.
Therefore, it is noteworthy to note that pursuant to provisions of section
185(2)of the Companies Act,2013, a Public Company may give guarantee to
any private company in which the director of the public company is acting as
a director or member by passing a special resolution at a duly General
Meeting of the Members of the Company.
However, it is pertinent to note that, in addition to the provisions of section
185 of the Act, the Company shall comply with the provisions of section 186
of the Act and which deals with “Loan and Investment by Company”.
The relevant extract of Section 186(2) and (3) of Companies Act, 2013 read
as under:-
“(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 subscription, 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.

(3) Where the aggregate of the loans and investment so far made,
the amount for which guarantee or security so far provided to or in
all other bodies corporate along with the investment, loan, guarantee
or security proposed to be made or given by the Board, exceed the
limits specified under sub-section (2), no investment or loan shall be
made or guarantee shall be given or security shall be provided
unless previously authorised by a special resolution passed in a
general meeting.”

The aforesaid provision allow any Company (Public or Private) to grant

loans, give any guarantee or provide security in connection with a loan to
any other body corporate or person subject to passing of resolution at a duly
convened board meeting with unanimous approval of all the directors
present at the meeting. Thus, the approval of the Board is required in all
cases irrespective of the amount of loan, investment, guarantee or security.
Prior approval of the shareholders by means of special resolution need to be
passed in a duly convened general meeting when the aggregate of the loan,
investment, guarantee or security already made together with the loan,
investment, guarantee or security proposed to be made by the public
company exceeds the following limit specified u/s 186(2) of the Companies
Act 2013,i.e:-

 60% of its paid-up share capital, free reserves and securities premium
account; or
 100% of its free reserves and securities premiwum account
whichever is more
Such resolution also need to specify the aggregate amount beyond ceiling
limit mentioned u/s 186(2), within which board can give any loan or give
any guarantee or any security in connection with a loan or invest in
securities of any body corporate.

Conclusion
In this context, we hereby conclude that the Public Company need to comply
with the following;
1.Pass resolution as per Section 179 (3)(f ) of the Companies Act 2013 for
providing guarantee to the private company at a duly convened meeting of
Board of Directors. File the Board Resolution in e-Form MGT-14 within 30
days from the date of holding the meeting of Board of Directors .
2.Pass Special Resolution as per Section 185 of the Companies Act,2013, at
a duly convened Meeting of Shareholders and file the Special Resolution in
e-Form MGT-14 within 30 days from the date of holding of such meeting.
The Explanatory statement to the notice of such general meeting must
disclose the following:
o details of proposed guarantee given
o purpose for which the guarantee is given
o utilisation of guarantee given

(Note: Public company need to ensure that loans are utilized by the
borrowing company for its principal business activities)
3.Where the aggregate of the loan, investment, guarantee or security already
made together with the loan, investment, guarantee or security proposed to
be made by the public company exceeds the limit specified u/s 186(2), then
the Public Company need to take prior approval from shareholders of the
company by way of Special resolution in addition to unanimous approval
from all the directors present at a duly convened Board Meeting as per
Section 186 of the Companies Act 2013. File e-Form MGT-14 within 30 days
from the date of holding of such Board/General meeting .
(Note: As per Rule 13 of the Companies (Meetings of Board and its
Powers) Rules, 2014, the resolution also need to specify the aggregate
amount beyond ceiling limit mentioned u/s 186(2), within which board
can give any guarantee to the private company)
4. Public company shall disclose to the members in the financial statement:-
 the full particulars of guarantee given to the private company;and
 the purpose for which the guarantee is proposed to be utilised by the
recipient of the guarantee.

5. If the Public Company has already taken any term loan from any public
financial institution, then a prior approval from such public financial
institution shall also be taken by the public company as per Section 186(5)
of the Companies Act,2013 in the following circumstances: -

 if the aggregate of the loans and investments so far made, the amount
for which guarantee or security so far provided to or in all other bodies
corporate, along with the investments, loans, guarantee or security
proposed to be made or given exceed the limit as specified in sub-
section (2); or
  if there is a default in repayment of loan instalments or payment of
interest thereon as per the terms and conditions of such loan to the
public financial institution.

6.The Company giving guarantee shall maintain register in Form MBP-2 and
the entries shall be entered within 7 days of giving such guarantee.