Holding Company

The holding company can become a surety for the subsidiary company.  

What you need to do is provide the documents of the holding company which prove that it is a holding company of the subsidiary and show them holding company's balance sheets.

I think if this is done then there shall not be a problem in getting loan from the financial company.

Dear Nipun,

I fully endorse Anand's view point and in the alternative the Holding Company can give corporate guarantee for its subsidiary for the purposes of availing loan facility provided the Bank manual provides for the same.

Best Regards

Daksh

My question can the holding company make the repayment for the loan in the normal course, where as the financial institution has provided loan to subsidiary.

It will be a better option that the holding company gives loan to the subsidiary.  The loan, even may be interest free.

And, to remind, 372A doesnt apply to wholly owned subsidiary company.

eriuirero

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As some of you rightly pointed out A Ltd (Holding Co.) and B Pvt Ltd. (subs co.) are two seperate entities. My basic intent is to know,

If the repayment of loan taken by B Pvt. ltd. is being paid by A Ltd.

Loan by B Pvt Ltd.

Repayment by A ltd.

Does the law allow this or it is a voilation of any law.

In my opinion, Yes.  This is very much possible in law. Only thing is that the financial company needs to accept this proposal.  Please peruse following sections from Contract Act. 

8. Acceptance by performing conditions, or receiving consideration .- Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.

40. Person by whom promise is to be performed .– If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representatives may employ a competent person to perform it.

Illustrations

(a) A promises to pay B a sum of money. A may perform this promise, either by personally paying the money to B or by causing it to be paid to B by another; and, if A dies before the time appointed for payment, his representatives must perform the promise, or employ some proper person to do so.

(b) A promises to paint a picture for B. A must perform this promise personally.

41. Effect of accepting performance from third person .– When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor.

127. Consideration for guarantee. – Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee.

Illustrations

(a) B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A's promise to deliver the goods. This is a sufficient consideration for C's promise.

(b) A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year, and promises that, if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient consideration for C's promise.

(c) A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for them in default of B. The agreement is void.

Thanks & Regards

Mr. Anand. I really appreciate the research done by you.

Though Contract Act remains the basis of corporate law, but, please note that the provisions of Companies Act, 1956 are applicable in this case, in specific, and not Contract Act.

so pooja whats ur take on this...do u want to add anything

As stated earlier, it will be a better option that the holding company gives loan to the subsidiary.  The loan, even may be interest free.