This refers to the report "Companies Act likely to jolt realty firms" (April 21). Section 185 of the Companies Act, 2013, which puts restrictions on inter-corporate loans, jolted not only realty firms but also the corporate world. Until now, companies were in the habit of borrowing funds from banks and passing them on to subsidiaries and associate companies through inter-corporate loans. The holding companies never bothered to comply with the terms of the loan agreement when it concerned the deployment of the borrowed funds. The banks never monitored such fund deployment either. It is common knowledge that had the subsidiary companies directly approached the banks they wouldn't be granted loans. The new provisions will not hamper the working of transparent companies since loans to wholly-subsidiary companies are exempted and parent companies can give a guarantee for the loans taken by their subsidiaries.
S Prabhakar New Delhi
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