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By:
CA Kamal Garg
[B. Com (H), FCA, DISA (ICAI), LLB]
Part I
Borrowing Powers of the Company
under Companies Act, 2013
Borrowing Powers of Company
[Section 180(1)(c)]
If: Borrowings [Present (+) Proposed] > [Paid-up Share
Capital (+) Free Reserves];
Then: SR Approval required
(words used in Section are exercise the powers only
with the consent by SR)
Companies Covered: Public as well as Private;
Borrowings Exclusion: Temporary Loans obtained
from Companies Bankers in ordinary course of Business
Case Study
Particulars Case I Case 2 Case 3 Case 4
(Rs. In Cr.) (Rs. In Cr.) (Rs. In Cr.) (Rs. In Cr.)
Equity Share 100 100 100 100
Capital
Pref. Share 50 50 50 50
Capital
Free Reserves 20 20 20 20
Total 170 170 170 170
Present 120 120 120 120
Borrowings
Proposed 30 40 50 60
Borrowings
Total 150 160 170 180
Resolutions BOD BOD BOD BOD (+) SR
Particulars Case I Case 2 Case 3 Case 4
(Rs. In Cr.) (Rs. In Cr.) (Rs. In Cr.) (Rs. In Cr.)
Paid up Capital 150 150 150 150
Free Reserves 20 20 20 20
Total 170 170 170 170
Working Capital loan 50 50 50 50
(repayable on demand -
Existing) from GE Capital Ltd.
CC from PNB (repayable on 120 120 120 120
demand - Existing)
6 Months loan for Plant & 30 40 50 60
Mach. from PNB (Proposed)
24 Months loan for Plant & 10 20 30 40
Mach. from PNB (Proposed)
Total 210 230 250 270
Eligible Borrowings 90 110 130 150
Resolutions BOD BOD BOD BOD
Part II
S3 Ltd.
Chart - 1
H Ltd. Soda Ash Business
S1 Ltd. S2 Ltd.-
Textiles Salt
Business Business
S3 Ltd. S4 Ltd.
Spinning Herbal
Business Business
S5 Ltd. S6 Ltd.
Cotton Raw Salt
Process Producer
Chart - 2
Loans And Investments By Company
[Section 186]
Limit for making inter-corporate loan, guarantee, providing
security or investment [Section 186(2)]:
A company can not, directly or indirectly-
(a) give loan to any person or other body corporate.
(b) give any guarantee or provide security in connection with a loan
to any body corporate or person; or
(c) acquire by way of subscription, purchase or otherwise, the
securities of any other body corporate.
Exceeding:
1. 60% of [Paid Up Share Capital (+) Free Reserves (+) Securities
Premium Account]; or
2. 100% of [Free Reserves (+) Securities Premium Account],
whichever is more
Loans And Investments By Company [Section 186]
If: Amounts Involved (supra) > Specified Limit
Then: Prior SR Approval is required [Section 186(3)]
Disclosure in F.S.: Particulars & purposes of such loans,
investments etc. required to be disclosed [Section 186(4)];
BOD Approval always required: All the directors present in
the BOD Meeting;
PFI Approval when required: if any term loan is subsisting;
PFI Approval when not required: If:
1. Amounts Involved [present (+) proposed] < Ceiling Limit
(supra); and
2. No default in repayment of their loan instalments or payment of
interest thereon
Loans And Investments By Company [Section 186]
Default in the repayment of any deposits: Company
prohibited to give any loan or give any guarantee or provide
security or make an acquisition till such default is subsisting;
Register of loan, guarantee, security, or acquisition: To be
kept at the registered office, in manual or e-mode, in Form
MBP 2;
S. 186(2) to (10) not to apply in certain cases:
1. Loan, Guarantee, Security by Banking Co./ Insurance Co./
HFC/ Company engaged in business of financing companies
or providing infra facilities;
2. Acquisitions made by NBFC in ordinary course of business;
3. Acquisitions through Right Issue
Loans And Investments By Company [Section 186]
Exemption to subsidiary company/joint ventures
conditions thereof: As per Rule 11(1) of the Companies
(Meetings of Board and Its Powers) Rules, 2014:
Where a loan or guarantee is given or where a security has
been provided by a company to its:
(i) wholly owned subsidiary company, or
(ii) a joint venture company, or
Where an acquisition is made by a holding company, by
way of subscription, purchase or otherwise of, the securities of
its wholly owned subsidiary company,
the requirement of sub-section (3) of section 186 shall not
apply.
Part V
Auditors Liabilities
under Companies Act, 2013
Services which auditor should not
provide to the auditee company
Statutory auditor shall not directly or indirectly
provide any of the prescribed "other services to
the:
1. auditee-company; or
2. its holding company; or
3. subsidiary company [Section 144]
Services which auditor should not provide to
the auditee company.contd.
Prescribed Other Services:
1. accounting and book keeping services;
2. internal audit;
3. design and implementation of any financial information system;
4. actuarial services;
5. investment advisory services;
6. investment banking services;
7. rendering of outsourced financial services;
8. management services; and
9. any other kind of services as may be prescribed.
Requirement of highlighting certain comments
in audit report in thick type or italics omitted
Section 143(3)(f) omits requirement to highlight
comments in thick type or italics;
Section 143(3)(f) redrafts the requirement to provide
that auditor's report shall state the observations or
comments of the auditors on financial transactions
or matters which have any adverse effect on the
functioning of the company;
Section 143(i) of the 2013 Act requires the auditor's
report to state whether the company has adequate
internal financial controls system in place and the
operating effectiveness of such controls
Auditor's duty to AGM
Section 146 provides that the auditor shall attend
any general meeting:
1. by himself, or
2. through his authorised representative who is
qualified to be an auditor.
Such attendance is compulsory unless
otherwise exempted by the company.
Auditor's liabilities
Section 147(2) provides as under:
If an auditor of a company contravenes any of
the provisions relating to:
appointment of auditors (section 139),
contents of audit report (section 143),
compliance with auditing standards (section 143),
rendering prohibited services (section 144), and
signing of audit report (section 145),
the auditor shall be punishable with fine which shall
not be less than Rs. 25,000 but which may extend
to Rs. 5,00,000
Auditor's liabilities.contd.
If an auditor has contravened such provisions
knowingly or wilfully with the intention to deceive:
1. the company, or
2. its shareholders; or
3. creditors; or
4. tax authorities,
he shall be punishable with:
1. imprisonment for a term which may extend to one
year; and
2. with fine which shall not be less than Rs. 1,00,000 lakh
but which may extend to Rs. 25,00,000 [proviso to
section 147(2)]
Auditor's liabilities.contd.
Section 147(3) provides that where an auditor has been
convicted of an offence as above, he shall be liable to-
1. Refund the remuneration received by him to the
company; and
2. Pay for damages:
to the company,
to the statutory bodies or authorities,
to any other persons
for loss arising out of incorrect or misleading statements
of particulars made in his audit report
Part VII
cakamalgarg@gmail.com, www.kgma.in
M: 9811054015