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Borrowing Power of a Company

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This query is : Resolved

Rishi Vyas (Querist)

07 October 2010 Section 293(1)(d) says that if the amount of borrowing exceeds the aggregate of paid capital plus free reserves then members consent has to be obtained in general meeting. This resolution specifies the maximum borrowing limits.

Query is that whether the limit so fixed includes the agreegate of paid up capital and free reserves or not?

In other words whether the resolution is for exceeding amount or the entire amount?

Ankur Garg

Ankur Garg (Expert)

07 October 2010 Let me explain through an example:

1. Total of paid up capital and free reserve is 100 crore.

2. Existing borrowing is 90 crore.

3. proposed borrowing is 30 crore.

now the shortfall is 20 crore (90+30-100).

Now the importance of language of resolution comes into picture.

Now as per the ideal language----the amount of borrowing including the proposed borrowing shall not exceed Rs. 150 crore.

Now with this language you have the limit of Rs. 50 crore in your hand.

Regards

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