Section 372A(2)

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udit sharma (Querist)
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22 December 2010 Hi...

Pls. help......

Facts of the case

The paid up capital and Free Reserves of A Ltd. as at 31-03-2010 is as under:

Paid up Capital : Rs. 125,00,00,000/-

Free Reserves : Rs. 25,00,00,000/-

________________

Total Rs. 150,00,00,000/-

________________

60% of the Paid up Capital+

Free Reserves : Rs. 90,00,00,000/-

100% of Free Reserves : Rs. 25,00,00,000/-

As per section 372A (1) of the Companies Act, 1956 A Ltd. can make Loan, give guarantee or provide security in connection with a loan made by any third person to any Body Corporate or by any Body Corporate to any third person to the extent of Rs. 90.00 Crores.

The aggregate of the loans made, guarantee give and security provided by A Ltd till date is to the tune of Rs. 75.00 Crores. A Ltd. proposes to make a loan of Rs. 25.00 Crores to B Ltd.

For the purpose, A Ltd. has to obtain:

1. Unanimous consent of the Directors present at the Board Meeting where the proposal to grant loan to B Ltd. is considered by the Board.

2. Prior Approval of the Shareholders by way of a Special Resolution to be passed in the General Meeting of the Company.

Company A has availed a Term Loan of Rs. 60 Crores from IDBI(Public Financial Institution)and it is subsisting till date.

Since the aggregate of the Loans made, guarantee given or security provided by A Ltd.(together with the Loan of Rs. 25 Crores to be made to B Ltd.) exceeds the limit of 60% of the paid up capital and free reserves of the Company, the Company has to obtain the prior approval of IDBI even thought the Company has not defaulted in payment of interest or loan installments as per the terms and conditions of IDBI.{Section 372A(2)}.

Now, as per proviso to Section 372A (2) no prior approval of the Public Financial Institution is required if the aggregate of the loans made, guarantee given or security provided together with the loans/guarantee/security proposed to be made is within the specified limits (which is 60% of the paid up capital+ Free Reserves) and neither has the Company defaulted in payment of interest and loan installments.

My query is suppose the aggregate of the loans made, guarantee given, security provided is within 60% of paid up capital+ free reserves and the Company has not defaulted in payment of interest and loan installments whether the Company has to obtain any approval of IDBI after granting of Loan???????

If yes, suppose IDBI does not accord its approval then what????????

God Bless

Udit Sharma