Several major changes have been brought to the Companies Act, 2013 by the COAMPANIES (AMENDMENT) ACT, 2015. Two of the major changes impacting the holding & subsidiary transactions are as follow:
Section 185 has been amended to exempt loans given by holding companies to its wholly-owned subsidiary companies and also to security or guarantees given by holding companies to their subsidiary companies with respect to loans advanced by bank or financial Institutions provided they are used for the principle business activity of the subsidiary company.
Section 188 deals with the related party transactions has been relaxed by amending it and by removing the need for passing a special resolution. Further, need for passing any resolution has been done away with when it comes to a wholly owned-subsidiary.
These steps will indeed increase ease of doing business in India. But several section of the society are arguing that some of these measures will be against the spirit of Corporate Governance. Shareholders powers will significantly decrease and investors will have little power to control related party transactions and other holding-subsidiary transactions due to these changes. This may lead to grievances even from minority shareholders, institutional investors and other sections that might find such related party transactions opaque and might not have much power to exercise.
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