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CS Professional · Corporate Restructuring, Valuation and Insolvency · Acquisition of Company or Business

Kaveri Engineering Ltd, whose loans and investments already exceed the section 186(2) limit, wishes to give a loan of Rs 5 crore to its wholly owned subsidiary, Kaveri Components Pvt Ltd. Which statement is correct?

The special resolution requirement does not apply to a loan to a wholly owned subsidiary, but the company must still disclose the details of the loan in its financial statement. The exemption covers only the sub-section (3) approval, not disclosure.

  1. AA special resolution under sub-section (3) is mandatory in every case
  2. BThe sub-section (3) special resolution requirement does not apply, but details must be disclosed in the financial statementCorrect
  3. CNo disclosure is needed as wholly owned subsidiaries are fully exempt
  4. DThe loan is prohibited because the limit is already exceeded

Explanation

The first proviso to sub-section (3) exempts loans to a wholly owned subsidiary from the special resolution requirement. The second proviso still requires disclosure of details in the financial statement under sub-section (4). Hence disclosure remains compulsory.

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