Applicability of Sec 372A

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Mentor at SHAYVIDZ Academy

3756 Points Joined September 2007

A private limited company is converted into public company on 31.03.2010...

Intercorporate Investment were already exceeds the limit of Sec. 372A when it was private company..

Thus 372A was not applicable when it was private company, so no SR were required.. but now it become public company, so whether SR is required for OLD INVESTMENTS ?? if required, then what will be the maximum time limit for this SR ??

Sec 372A says,

(1) No company shall, directly or indirectly,-
(a) make any loan to any other body corporate:
(b) give any guarantee, or provide security, in connection with a loan made by any other person to , or to any other person, by any body corporate: and
(c) acquire by way of subscripttion, purchase or otherwise the securities of any other body corporate,

exceeding sixty percent of its paid -up share capital and free reserve, or one hundred percent of its free reserves, whichever is more

But in this case, the company is neither going to make loan or to give guarantee nor acquiring securities. Act is silent about previous investment's approval.

please give me the reference of ur answer...

Thanks in advance...

Replies (5)

CourseCart.in

Mentor at SHAYVIDZ Academy

3756 Points Joined September 2007

no body has answer of my question?

Deepak Maharishi

514 Points Joined April 2010

Dear Adarsh,

No. The approval through special resolution is not required.

What I understand is that you are asking for ratifying such investments which exceeded the limits prescribed therein.

The approval is certainly not required for the following reason:

1. There are several sections which are not applicable to private companies. The applicability of section dependes on the present status of the company and not future. Whatever is exepmt to a private limited company is because its status what it is enjoying at the time of executing a particular transaction which is "investment over limits" in your particular case.

2. Section 372A is kind of parent section which states that each company has to be specific in terms of details of loan or guarantee or investments to be made in other body corporates. So in 372A we have to mention the name of the body corporate - type of investment - name of the bank - name of the financial institution - type of loan - type of investment etc in the resolution passing the same.

After being converted as a public limited company, you ll have to abide by the section as applicable to all public companies but only for the transactions (loan / guarantee / security / investment) entered after 31.03.2010 i.e. date of becoming public limited company.

Thanks and regards

Deepak Maharishi

Ashish Gupta

CS & Legal

114 Points Joined May 2010

Mr. Deepak is correct. However, it will be better if you get the transactions prior to 31.03.10 ratified by the Board of Directors at their subsequent meeting.

Rgds,

Ashish

Gourav Sharma

24 Points Joined June 2010

Hi Adarsh,

The provisions of Section 372A are not attracted for the investments etc. already made by a pvt. co. even after it has been converted into a public co.

This is so because the unanimous approval of the Board and special resolution (if required) is required before making the investments etc. which is not possible after a pvt. co. has been converted into a public co.

Thanks.

Gourav Sharma

24 Points Joined June 2010

Hi Adarsh

I must also add that no ratification by the Board is required.

Ratification means giving authority for an act already done. In the given case, the Board of pvt. co. was authorised to make the investments etc. without complying with the requirements of Sec. 372A, and so the power to make investments has been validly exercised. Therefore, there is no question of ratification.