BORROWINGS

1. BORROWINGS Presented By: FCS Ashok Tyagi E-130, Greater Kailash 1, New Delhi E-Mail: atyagi53@gmail.com Mob: 09810070575

2. BORROWINGS The term “Borrowing” is not defined in Companies Act, 2013. BORROWING POWERS: Section 180(1)(c) of Companies Act, 2013 (corresponds to Section 293 of the Companies Act, 1956) Section 180 (1): - The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:— (c) to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business: Provided that the 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, shall not be deemed to be a borrowing of monies by the banking company within the meaning of this clause.

3. Explanation: - For the purposes of this clause, the expression “temporary loans” means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature; Section 180(2) Every special resolution passed by the company in general meeting in relation to the exercise of the powers referred to in clause (c) of sub-section (1) shall specify the total amount up to which monies may be borrowed by the Board of Directors. Section 180(5) No debt incurred by the company in excess of the limit imposed by clause (c) of sub-section (1) shall be valid or effectual, unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been exceeded.

4. Conclusion: - So a combined reading of the above section implies that it has become necessary for private/public companies to obtain approval of their members by way of special resolution passed at the general meeting that the company is allowed to borrow monies in excess of the paid up share capital and free reserves of the company, specifying thereby the maximum amount upto which monies could be borrowed by the company. Since the operative part of section 180(1)(c) does not mention “after the commencement of this Act” it means all working and active private companies will be required to pass the necessary special resolution in this regard. Since the section has been made effective from 12th September 2013, it would be imperative for private companies to get such special resolution passed at the earliest, since sub-section (5) above clearly stipulates that the onus of complying the provisions of this section is upon the private company since the lender can claim that he has acted in good faith. 

5. Borrowing Powers of Company[Section 180(1)(c)] • If: Borrowings [Present (+) Proposed] > [Paid-up Share Capital (+) Free Reserves]; • Then: SR Approval required (words used in Section are “exercise the powers only with the consent by SR”) • Companies Covered:Public as well as Private; • Borrowings Exclusion:Temporary Loans obtained from Companies Bankers in ordinary course of Business

6. Case Study

8. THANK YOU FCS ASHOK TYAGI