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CA CS CIMA Adv Dip MA Prakash (CA CS CIMA)     18 November 2009

Urgent Query - Holding company and 100% subsidiary company

A Ltd is 100% subsidiary of B Ltd (Holding company). A Ltd taken a bank loan which it is defaulted in repayment. Whether Bank can recover the loan amount from B ltd which is 100% Holding company of A ltd ?



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 9 Replies

Asha Pole (Legal)     18 November 2009

As it is rightly said that a holding company has a deep interest in it's subsidiary, since the loan taken by the subsidiary company was borrowed for business purpose ,then it becomes quite obvious that the bank can approach the holding company incase of loan default made by the subsidiary company.

Ramamurthi Harirao (Practsing Company Secretary)     18 November 2009

Holding company will be liable only if the holding company had guaranteed the loan as a guarantor. As a shareholder the holding company is not directly responsible as both the companies are separate legal person.

1 Like

Adinath@Avinash Patil (advocate)     18 November 2009

If holding company have guaranted laon as guarantor holding company is liable for loane due amount.Bank can recover loan due amount from B ltd.

CA CS CIMA Adv Dip MA Prakash (CA CS CIMA)     19 November 2009

In case holding company does not guaranteed the loan to 100% subsidiary then what will be the implications.

 

Please also quote case law reference if you have any.

Cs. Anjani Kumar (Associate)     20 November 2009

Dear Somani,

Existance of company is seperate from its shareholders. Holding company will never be responsible/ liable for the debts of its subsidiary company.

Cs. Anjani Kumar

1 Like

Satyaprakash Sharma (Advocate & Legal Consultant)     08 December 2009

I agree with Anjani Kumar. If you are concerned for the Bank's side, you can certainly initiate a liquidation proceeding against said subsidiary for non-payment of debt.

PC Agrawal (Company Secretary)     13 December 2009

I agree with the views of Anjani Kumar.  Holding co. and subsidiry co. are two different legal entities and bank cannot take action against the holding co. directly for default of subsiairy co. unless the holding co. had given corporate guarantee.

 

Devajyoti Barman (Advocate)     14 December 2009

Granting or taking a loan is the result of contract and in that circumstances only the party to the agreement is liable not the other. The Holding Company has got sepaarte legal existence from the borrower for all practical purposes.

Ishan Goel (Advocate)     03 February 2012

I agree with all the above made replies as it is a very important law that every company holds separate and Individual legal identity.. even though the holding company has 100% of the subsidary company cannot be held liable for the acts done by the subsidary company.. the subsidary company is purely and individually liable for the acts, whether in the nature of civil, criminal or any other present laws prevailing in India, done by self.
 

Here a major emphasis has been raised on the Holding Company having 100% in the Subsidary Company.. Based on my knowledge in this particular subject the Holding Company shall be treated as the shareholder in the Subsidary Company and will be having rights as a normal individual shareholder in the Subsidary Company.


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