section 292 & 293 of company act 1956

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RAJKUMAR

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18 May 2009 full commentry & case law regarding the scetion 293 sub dection d of company act 1956

Ankur Garg

Ankur Garg (Expert)
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19 May 2009 I don't understand your query. Please explain..

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Aashok Kumar Sharma online

Aashok Kumar Sharma online

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23 July 2025 Here's a comprehensive commentary and relevant case law related to **Section 293(1)(d)** of the **Companies Act, 1956** (now largely superseded by the Companies Act, 2013):

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## 📘 Section 293(1)(d) – Companies Act, 1956 (Now Omitted)

> **Section 293(1)(d)** restricted the **Board of Directors** of a **public company (or a private company that is a subsidiary of a public company)** from **borrowing** amounts in excess of the **aggregate of its paid-up capital and free reserves**, **without prior consent of shareholders in a general meeting**.

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### 📌 **Bare Text of Section 293(1)(d)**

> The Board of Directors of a public company shall not, except with the consent of such public company in a general meeting:
>
> **(d)** borrow money, **where the moneys to be borrowed together with the moneys already borrowed by the company (apart from temporary loans obtained from the company’s bankers in the ordinary course of business)** will **exceed the aggregate of the paid-up capital of the company and its free reserves** (that is to say, reserves not set apart for any specific purpose).

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## 🔍 Key Interpretations:

### ✅ **Temporary Loans Exception**

* Temporary loans are **excluded** from the limit.
* Includes: **short-term loans, cash credit, overdrafts from banks**, etc., obtained **for working capital**.
* Excludes: Loans for **capital expenditure or term borrowings**.

🧾 **Case Law:**

> **K.M. Mani v. Registrar of Companies (1994) 80 Comp Cas 574 (Ker)**
> Held that **temporary loans obtained from the bank** in the **ordinary course of business** do **not require shareholders’ approval**.

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### ✅ **Free Reserves**

* Means **reserves available for distribution** as dividend (not earmarked).
* **Securities premium**, **capital reserve**, **revaluation reserve**, etc., are **not considered** free reserves.

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### ✅ **Borrowing Beyond Limit – Consequences**

* Borrowing beyond the prescribed limit **without shareholders’ approval** is **ultra vires the Board**.
* The act is **not void**, but directors may be held **liable**.

🧾 **Case Law:**

> **Jai Narain Parasrampuria v. Pushpa Devi Saraf (2006) 7 SCC 756**
> SC observed that **a company can ratify ultra vires borrowing** (not ultra vires the company) by passing a resolution **post-facto**, provided it falls within company powers.

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### ✅ **Nature of Borrowing – Ordinary vs. Long-term**

* Whether borrowing is **temporary (working capital)** or **long-term (term loans)** is determined by **purpose**, not **duration**.

🧾 **Case Law:**

> **Indian Metals & Ferro Alloys Ltd. v. Union of India (1991) 71 Comp Cas 212 (Del)**
> Court held that borrowing for acquiring assets is **not temporary** and thus **requires shareholders’ approval** under Section 293(1)(d).

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### ⚠️ Important Notes:

* This section **did not apply to private companies** (unless they were subsidiaries of public companies).
* It was **mandatory** for public companies to pass an **ordinary resolution in a general meeting** for such borrowings.

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## 🔁 Repeal & Corresponding Section in Companies Act, 2013

* **Section 293** of the 1956 Act has been replaced by **Section 180 of the Companies Act, 2013**.
* Under Section 180(1)(c) of the 2013 Act:

* **Special resolution** is required (not just ordinary resolution).
* Applies **only to public companies**, and now **private companies are also exempt**.

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## 📚 Summary Table

| Topic | Description |
| --------------------------------- | --------------------------------------------------------- |
| Section | 293(1)(d), Companies Act, 1956 |
| Restriction | Borrowing beyond paid-up capital + free reserves |
| Exception | Temporary loans from banks in ordinary course of business |
| Approval Needed | Ordinary resolution in general meeting |
| Applicable To | Public companies and subsidiaries of public companies |
| Corresponding Section in 2013 Act | Section 180(1)(c) – Requires **special** resolution |

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Would you like me to draft a sample board/shareholders’ resolution or provide PDF links to relevant case laws or MCA circulars?

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