Maximum limit as per Sec. 372A

Originally posted by : Sumit Jaiswal
	Please help me in calculating the maximum limits for providing inter corporate loan/ guarantee as per Sec. 372A. The balance sheet of a public company shows following figures:   Equity Shares of Rs.10/- each For Cash 1779000.00         For consideration other than cash 4249650.00         Allotted by way of Bonus Shares     on Capitalisation of Reserves 18085950.00         Fully paid Equity Shares 24114600.00       6% Non-Cumulative Redeemable    Preference Shares of Rs 100/- each 18000000.00   SCHEDULE  2-   RESERVES & SURPLUS           Capital Reserve   8803465.00 Share Premium   100000.00 Revaluation Reserve   4179667.00       Total   13083132.00   Further there is a debit balance of PL also which is shown in the Application of Funds side of the balance sheet as follows:   Profit & Loss Account                 211229732.87 Less: General Reserve per Contra 13808874.00                                                         197420858.87     Due to the debit balance of PL, the limit is coming to a negative figure. Now, should 60% of paid up capital be considered as the maximum limit for providing inter corporate loans/ guarantee, since there does not remain free reserve after adjusting the negative balance of PL.

 Hi Sumit

As per my understanding, 372A states 60% of PSC + Free Reserves or 100% free reserves

which ever is higher.

So if your free reserves are adjusted to negetive p/l then you have free reserves of zero.

So your calculation should be 60 % of psc.

Note: Limit can exceed if there is special resolution passed for limit more than 60%.

Experts  views  solicited.

regards

Santosh Shah

Now, since there is no free reserve left; the limit will be 60% of paid up share capital which is coming out to be Rs. 2,52,68,760. Am I right?

Originally posted by : Sumit Jaiswal
	Now, since there is no free reserve left; the limit will be 60% of paid up share capital which is coming out to be Rs. 2,52,68,760. Am I right?

 Hi Sumit

60% of PSC comes to the figure mentioned by you. 

But on capitalisation of reserves vide bonus shares we need to check with experts, if that would form

part of PSC.

Experts please advice.

regards

Santosh Shah