(Querist) 08 February 2014
This query is : Resolved
My client is an Indian Company based in Delhi NCR.It has a Hong Kong based wholly owned subsidiary.The HK WOS has set up an industrial project in Africa Region.
The Indian Company and the Company at Africa have two common directors.
In view of Section 186 of the C.A.,2013 not being notified,the Indian Company has considered Section 372A of the C.A.,1956 and decided to give a Guarantee for obtaining a Term Loan for the African Cmpany? Is this decision valid within the framework of the Companies Act?
(Expert) 09 February 2014
yes. till the sec is notified,sec 372 A is allowed to be operational.
as per 372A, if the indian co.has outstanding term loans dues and/or interest dues,you need to take lenders consent .
ensure your articles of association permit issue of corp.guarantees.or else alter articles by spl. resolution.
to extend an inter corp.guarantee outside india,keep in mindrbi guidelines as follows
"...ii). An Indian party may offer any form of guarantee on behalf of the JV / WOS [corporate or personal / primary or collateral / guarantee by the promoter company / guarantee by group company, sister concern or associate company in India] provided that:
The total financial commitment of the Indian party, including all forms of guarantees, are within the overall ceiling prescribed for overseas direct investment;
No guarantee should be 'open ended' i.e. the amount and period of the guarantee should be specified upfront.
In the case of performance guarantee, time specified for the completion of the contract shall be the validity period of the related performance guarantee;
In cases where invocation of the performance guarantee breaches the specified ceiling for the financial commitment of 400 per cent, the Indian party shall seek prior approval of the Reserve Bank before remitting funds from India;
All forms of guarantees are required to be reported to the Reserve Bank in Form ODI Part II.
(iii) An Indian party may extend corporate guarantee on behalf of the first generation step down operating subsidiary under the Automatic Route within the prevailing limit for the overseas direct investments...."