Live Course on Drafting of Appeal and Reply of Penalty Notice by CA Sachin Sinha. Register Now!!

Query on Section 293(1)(a)

Sumit Jaiswal (Company Secretary) (818 Points)

07 March 2011

Section 293(1)(a) uses the language 'whole, or substantially the whole, of the undertaking of the company'. I wanted to know what is the meaning of 'substantially the whole of the undertaking'. Does it mean the corresponding value of the asset which is being disposed off should be more than 50% of the value of the total fixed assets?

Also, if a company keeps its properties as equitable mortgage with a bank in order to provide corporate guarantee to another company, will Section 293(1)(a) be attracted?

Reply
Follow
Share

6 Replies

Sumit Jaiswal (Company Secretary) (818 Points)
Replied 08 March 2011

Any responses for this query, please.

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 08 March 2011

According to me it would not depend on the value of the asset being disposed off. It would depend on the effect it had on its normal earning capacity.

Further creating equitable mortgage would not be covered under section 293(1)(a) but would be covered under Section 372A.

Other experts please give your opinion.

1 Like

Sumit Jaiswal (Company Secretary) (818 Points)
Replied 10 March 2011

Other views also solicited on the first part of the query.

Sudhir Garg (Service) (236 Points)
Replied 10 March 2011

I partly agree with Jayashree. For part I, i understand value of asset equally matters as earning capacity matters. Both factors need to be attened while deciding the same.

For part two, when company borrows money for its own purposes by mortgage / creats charge on its property, , resolution under 293(1) (a) and (d), if borrowings exceeds the specified limites, are required to be passed. Resolution u/s 293(1) (a) becomes applicable as soon as company creates charge / mortgage its assets as creating charge / mortgage also comes under this purview. Does not it also applicable when company mortgage for providing security for other group company??. I agree on the applicability of section 372A as stated by jayashree.

please opine

Regards- Sudhir

Sumit Jaiswal (Company Secretary) (818 Points)
Replied 12 March 2011

The meaning of 'substantially the whole of the undertaking' is still not fully clear to me. Please discuss.

Creating equitable mortgage would not be covered under section 293(1)(a).

nitin (associate) (21 Points)
Replied 25 June 2014

Just read the following case in respect to requirement of 293 1 a:

Sree Yellamma Cotton, Woollen And ... vs Official Liquidator, High Court ... on 30 August, 1968 (https://indiankanoon.org/doc/584284/)

The verdict was that it is not required for creation of mortgage or for hypothecation and the bank can sell off land and buildings and movable fixed assets without resolution under 293 (1) a.

Kindly suggest.