Whether resolution required under section 293(1)(d)

Per my limited knowledge (being a student), the end use of repaying a rupee loan is not a permitted use as per RBI Circular

RBI/2012-13/12

Master Circular No. 12 /2012-13

vi) End-uses not permitted

(c) for working capital, general corporate purpose and repayment of existing Rupee loans.

Including the link for reference

https://rbidocs.rbi.org.in/rdocs/notification/PDFs/12EC010712EF.pdf

vi) Repayment of Rupee loans and/or fresh Rupee capital expenditure for

companies with forex earnings

Indian companies in the manufacturing and infrastructure sector can avail of ECBs

for repayment of Rupee loans availed of for capital expenditure from the domestic

banking system which are still outstanding and/or fresh Rupee capital expenditure

provided they are consistent foreign exchange earners during the past three

financial years and not in the default list/caution list of the Reserve Bank of India.

The overall limit for such ECBs is USD 10 billion and the maximum permissible

ECB that can be availed of by an individual company will be limited to 50 per cent

of the average annual export earnings realized during the past three financial

years. The foreign exchange for repayment of ECB should not be accessed from

Indian markets and and the liability arising out of ECB should be extinguished only

out of the foreign exchange earnings of the borrowing company.

this is written under approval route.. also check RBI amendment as in june and sep circulars regarding repayment of rupee loan..now plz tell whether resolution reqd or not?

Dear Manpreet,

Section 293 (1)(d) includes all types of borrowings apart from ‘temporary loans’ obtained from the company's bankers in the ordinary course of business. So, even the ECB in dollar comes within it’s ambit.

The expression ‘temporary loans’ here means loans repayable on demand or within 6 months from the date such as short cash credit arrangements, the discounting of bills and the issue of other short term loans of a seasonal character, but does not include loans raised for the purpose of financing expenditure of a capital nature. [Please refer Companies Act 1956, Section 293(1), expln II.]

So, this company need not pass another ordinary resolution provided it does not exceed the previous limit established by the previous resolution. Only a Board resolution will suffice.

To check whether the previous limit would be crossed, convert the dollar loan into rupees (which comes around Rs.10,54,65,980) and add the previous non ‘temporary’ loan/s taken. Now compare the total arrived with the previous limit.  

If it exceeds the limit established by the previous resolution, another ordinary resolution should be passed.

Finally, as per RBI circular no. RBI/2011-12/617 A. P. (DIR Series) Circular No. 134, dated June 25, 2012, Indian companies are allowed to avail ECBs for repayment of Rupee loan(s) availed from the domestic banking system subject to certain conditions.

Regards,

Veeral Gandhi