Corporate Guarantee under the Companies Act, 2013-Resolution

CORPORATE GUARANTEE

Section 186(2) of the Companies Act, 2013 put certain restrictions on companies in giving any loan/security/guarantee to any other person/ body corporate and acquiring securities of any other body corporate as below. Such a loan/security/guarantee/acquisition shall not exceed higher of the following. 1.    60% of its puc+ free reserves+ security premium account; 2.    100% of its free reserves+ security premium account If such loan/guarantee/security/acquisition exceeds the above limit, then prior approval of the General Meeting by way of a Special Resolution is required as provided by Section 186(3) of the Companies Act, 2013. These restrictions are not applicable to loans made by a holding Company to its subsidiary Company. But the company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided under sub-section (4) of section 186.

Such details should be entered in the register maintained for that purpose(MBP-2) Ø  In chronological order within seven days; Ø  Kept at the Registered Office; Ø  Preserved permanently; Ø  In the safe custody of Company secretary/Board authorized person; Ø  Entries should be authenticated by Company secretary/Board authorized person; Ø  Maintained either manually/electronically; Ø  Extract is available for members.

v  No loan shall be given under this section at a rate of interest lower than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan. v  No company which is in default in the repayment of any deposits accepted before or after the commencement of this Act or in payment of interest thereon shall give any loan or give any guarantee or provide any security or make an acquisition till such default is subsisting.

If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.

The Act clearly specifies that the notice for General Meeting shall indicate: ·        Specific limits; ·        The particulars of the corporate to which guarantee is to be given; ·        The purpose of guarantee; ·        Such all other details including interest of Directors.

All companies are come under the purview of this Section except NBFCs, banking Companies, Insurance Companies and housing finance Companies.

SPECIAL RESOLUTION FOR CORPORATE GUARANTEE

“RESOLVED THAT pursuant to Section 186 and other applicable provisions, if any, of the Companies Act, 2013 and subject to the rules made there under, the consent of the Company be and is hereby accorded to the Board of Directors to provide corporate guarantee /give security by pledging/mortgaging the properties/assets of the Company to the extent of Rs. <>, to avail bank loan by M/s. <>, a Company having CIN <> and Registered Office at <> from <bank> and this limit covers all the securities/guarantees already provided by the Company. “RESOLVED FURTHER THAT Mr. <>, Managing Director and Mr. <>, Director of the Company be and is hereby authorized to execute the guarantee/loan agreement with the Bank on behalf of the Company and affix the common seal of the Company as per the provisions of the Articles of Association of the Company and to make necessary entries in the concerned registers to be maintained under the Companies Act, 2013 and to file required forms for the creation of charges with Registrar of Companies”.

Explanatory statement