XYZ Ltd. has a paid-up capital of ₹50 crore and free reserves of ₹30 crore. It provided a guarantee for repayment of a loan of ₹40 crore borrowed by its wholly owned subsidiary company. It did not pass any resolution for

According to section 186(2) of the Companies Act, 2013 no company shall directly or indirectly — Give any loan to any person or other body corporate Give any guarantee or provide any security in connection with a loan to any other body corporate or person Acquire by way of subscription, purchase or otherwise, the securities of any other body corporate, exceeding 60% of its paid-up share capital & free reserves and securities premium account or 100% of its free reserves and securities premium account whichever is more According to section 186(3) of the said Act where the giving of any loan or giving any guarantee or providing any security acquisition or purchase exceeds the limits specified above, prior approval by means of a special resolution passed at general meeting is necessary. However, according to Rule 11 of the Companies (Meetings of Board and its Powers) Rules 2014. Where a loan or guarantee is given or security has been provided by a company to its wholly owned subsidiary or a joint venture company the provisions of section 186(3) shall not apply. However, Section 186(4) provides that the company shall disclose to the members in the financial statement the full particulars of the loans given, investment made 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. Accordingly, in the present case, the guarantee given by XYZ Ltd. to its wholly owned subsidiary company without passing any resolution in the General meeting is valid. However the company is required to make disclosure to its members the particulars and the purpose of such guarantee as per the requirement of section 186(4).