Companies Act 2013: MCA Issues Clarification On Section 372A

The Companies Bill 2012 which received President’s assent on August 29, 2013 was published in the Official Gazette of India on August 30, 2013 and thereby became the Companies Act, 2013 (“the Act”). 

The Ministry of Company Affairs (“MCA”) vide their subsequent notification appointed September 12, 2013 (“the Notification”) as the date of bringing into effect 98 Sections of the Act. Amongst other Sections, the Notification brought into effect Section 185 of Act which dealt with loan to directors, etc and the corresponding Section 295 of the Companies Act, 1956 (“the 1956 Act”) ceased to have effect from September 12, 2013.

Post the coming into effect of 98 Sections of the Act, certain doubts were raised regarding the applicability of Section 372A of the 1956 Act given the provisions of the Section 185 of the Act and non enactment of Section 186 of the Act. 

The MCA vide its circular dated November 19, 2013 has clarified that Section 372A of the 1956 Act dealing with inter-corporate loans and investments, which inter alia exempts grant of loan/investments by a holding companies to their wholly owned subsidiaries, shall continue in force until Section 186 (dealing with inter-corporate loans and investments) of the Act is notified.

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