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BORROWING LIMITS FOR PVT LTD/LTD COS (Business Law)

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Author : SREEKUMAR

Posted On 19 August 2009 at 22:58

A bank wishes to fund pvt/ltd company. what are the major points to be looked into w.r.t. borrowing limits/powers of the company?
Is there any restrictive clause in company law w.r.t.the maximum amount than can be borrowed by a company?





Expert : A V Vishal

Posted On 19 August 2009 at 23:38

S.292. Certain powers to he exercised by Board only at meeting
Certain powers to be exercised by Board only at meeting
The Board of directors of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board:-

the power to make calls on shares holders in respect of money unpaid on their shares

the power to issue debentures

the power to borrow moneys otherwise than on debentures

the power to invest the funds of the company

the power to make loans

However, the Board may, by a resolution passed at a meeting delegate to any committee of directors, the managing director, or the manager of the company or any other principal officer of the company or in the case of a branch office of the company, a principal officer of the branch office, the powers specified in clauses (c), (d) and (e), to the extent specified in the resolution and subject to such conditions as may be imposed.

Acceptance by a banking company in the ordinary course of its business of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise or the placing of moneys on deposit by a banking company with another banking company on such conditions as the Board may prescribe, shall not be deemed to be borrowing of moneys or making of loans by a banking company for the purpose of these provisions.

These provisions also do not apply to borrowings by a banking company from other banking companies or from the Reserve Bank of India, the State Bank of India or any other banks.

In respect of dealings betwwen a company and its bankers, the exercise by the company of its powers to borrow money otherwise than on debentures shall mean the arrangement made by the company with its bankers for the borrowing of money by way of overdraft or cash credit or otherwise and not the actual day-to-day operation of overdrafts, cash credit or other accounts.

Every resolution delegating the power referred to in clause (c) ( the power to borrow moneys otherwise than on debentures ) shall specify the total amount outstanding at any one time up to which moneys may be borrowed by the delegate.

Every resolution delegating the power referred to in clause (d) (the power to invest the funds of the company ) shall specify the total amount up to which the funds may be invested, and the nature of the investments which may be made, by the delegate.

Every resolution delegating the power referred to in clause (e) (the power to make loans ) shall specify the total amount up to which loans may be made by the delegate, the purposes for which the loans may be made, and the maximum amount of loans which may be made for each such purpose in individual cases.

Nothing in this section be deemed to affect the right of the company in general meeting to impose restrictions and conditions on the exercise by the Board of any of the powers specified above.

Restrictions on powers of Board
The Board of directors of a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting :-

sell, lease or otherwise dispose of the whole, or substantially the whole, of the undertaking of the company, or where the company owns more than one undertaking, of the whole, or substantially the whole, of any such undertaking

remit, or give time for the re-payment of, any debt due by a director except in the case or renewal or continuance of any advance made by a banking company to its director in the ordinary course of business

invest, otherwise than in trust securities, the amount of compensation received by the company in respect of compulsory acquisition of any such undertaking as is referred to in clause (a), or of any premises or properties used for any such undertaking and without which it cannot be carried on or can be carried



Author : SREEKUMAR

Posted On 20 August 2009 at 08:47

Does it mean that the banker cannot give loan beyond paid up capital & free reserves?



Expert : A V Vishal

Posted On 20 August 2009 at 08:51

Obviously that is what the Act Says.


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