Section 180 of Chapter XII of Companies Act,2013 imposes certain restrictions on the powers of the board. As per this Section Board can exercise certain powers only with the consent of the company by a special resolution:-

(a) Sell, lease or otherwise dispose of the whole, or substantially the whole, of one or more undertaking of the company.

Certain Explanations for Sec 180(1)(a):-

1.  ‘Undertaking’ means

(a) Undertaking in which the investment of company is more than 20% of its net worth as per the audited balance sheet of the preceding financial year;or

(b) Undertaking which generates 20% of the total income of the company during the preceding financial year.

2. ‘Net Worth’

As per Clause(57) of Section 2, net worth means the aggregate value of the paid up share capital and all reserves created out of the profits and securities premium account, after deducting the value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write back of depreciation and amalgamation.

3. ‘Substantially the whole of the undertaking’

It means 20% or more of the value of the undertaking as per the audited balance sheet of the preceding financial year.

4. Non-Applicability

  No approval by way of special resolution is required if the ordinary business of the company consist of selling or leasing of properties.

5. Postal Ballot

If provisions of Section-110 are applicable to company, then, instead of passing the special resolution in general meeting, special resolutions by means of postal ballot can also be passed.

6. Discretion of members to impose restrictions

(a) The special resolution passed at the general meeting may stipulate the conditions regarding the use, disposal or investment of the sale proceeds, which may result from the transaction.

(b) Invest the compensation received by the company as a result of any merger or amalgamation.

(c) Borrow money, if money already borrowed, together with moneys to be borrowed will exceed the aggregate of paid up share capital, free reserves and securities premium account.

Certain Explanations for Sec180(1)(c):-

1.  Exclusion from borrowings

 Temporary Loans obtained from the company’s bankers in the ordinary course of business does not amount to borrowings.

2. Meaning of “Temporary Loans”

 Temporary loans means

 – loans repayable on demand; or

– loan repayable within 6 months from the date of loan

However ‘temporary loans’ does not include loans raised for financing capital expenditure.

3. Meaning of “Free Reserves”

As per clause (43) of section 2 Free reserves means such reserve which, as per the latest audited balance sheet of a company, are available for distribution as dividend.

Provided that followings must not be treated as reserves:-

– any amount representing unrealised gains, notional gains or revaluation of assets

– any change in carrying amount of an asset or of a liability recognized in equity, including surplus in profit and loss account on measurement of asset or liability at fair value.

4. Mandatory for members to specify overall limit

The special resolution passed by the members shall specify the total amount upto which moneys may be borrowed by the Board; otherwise such special resolution shall be void.

5. Effect of contravention on lender

 Any borrowing in contravention of Section 180(1)(c) cannot be enforced by the lender unless he proves that he advanced the loan in good faith and without knowledge that the limit imposed under this section have exceeded.

6. Provision applicable in case of a banking company

 In case of banking company accepting deposits from public does not amount to ‘borrowing’.

(d) Remit, or give time for, reapayment of any debt due by a director.

Clarification:-

(i) The provision of Section 10 shall not apply to a private company if it has not committed any default in filing with registrar its financial statemnts under section 137 or annual return under section 92[Notification No. G.S.R.464(E) dated 5th June,2015]

(ii) With respect to any general meeting of which notice was issued before 12.09.2013, the requirement of passing special resolution under section 180 of the Companies Act,  2013 shall not apply, and the matter can be transacted by passing an ordinary resolution as per the requirements of erstwhile section 293 of Companies Act,1956[General Circular No. 15/2013 dated 13.09.2013]

Author Bio

Qualification: Student - CA/CS/CMA
Company: Navin Sudhir and Associates
Location: Bahadurgarh, Haryana, IN
Member Since: 29 Apr 2020 | Total Posts: 2

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One Comment

  1. Abhishek says:

    Is there any capping on the amount of Loan/Borrowing that a private limited company can take from Banking Institutions?

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