Restrictions on Powers of Board.
(1) The Board of
Directors of a company shall exercise the following powers only with the
consent of the company by a special
resolution, namely:—
(a) to sell, lease or otherwise
dispose of the whole or substantially the whole of the undertaking of the
company or where the company owns more than one undertaking, of the whole or
substantially the whole of any of such undertakings.
Explanation.—For the purposes of this
clause,—
(i) “undertaking” shall mean an
undertaking in which the investment of the company exceeds twenty per cent. of
its net worth as per the audited balance sheet of the preceding financial year
or an undertaking which generates twenty per cent. of the total income of the
company during the previous financial year;
(ii) the expression “substantially
the whole of the undertaking” in any financial year shall mean twenty per cent.
or more of the value of the undertaking as per the audited balance sheet of the
preceding financial year;
(b) to invest otherwise in trust
securities the amount of compensation received by it as a result of any merger
or amalgamation;
(c) to borrow money, where the money
to be borrowed, together with the money already borrowed by the company will
exceed aggregate of its paid-up
share capital, free reserves and securities
premium, apart from temporary loans obtained from the company’s
bankers in the ordinary course of business:
Provided that the acceptance by a
banking company, in the ordinary course of its business, of deposits of money
from the public, repayable on demand or otherwise, and withdrawable by cheque,
draft, order or otherwise, shall not be deemed to be a borrowing of monies by
the banking company within the meaning of this clause.
Explanation.—For the purposes of this
clause, the expression “temporary loans” means loans repayable on demand or
within six months from the date of the loan such as short-term, 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
financial expenditure of a capital nature;
(d) to remit, or give time for the
repayment of, any debt due from a director.
(2) Every special resolution passed
by the company in general meeting in relation to the exercise of the powers
referred to in clause (c) of sub-section (1) shall specify the total amount up
to which monies may be borrowed by the Board of Directors.
(3) Nothing contained in clause (a)
of sub-section (1) shall affect—
(a) the title of a buyer or other
person who buys or takes on lease any property, investment or undertaking as is
referred to in that clause, in good faith; or
(b) the sale or lease of any property
of the company where the ordinary business of the company consists of, or
comprises, such selling or leasing.
(4) Any special resolution passed by
the company consenting to the transaction as is referred to in clause (a) of sub-section
(1) may stipulate such conditions as may be specified in such resolution,
including conditions regarding the use, disposal or investment of the sale
proceeds which may result from the transactions:
COMMENT: this sub-section shall
not be deemed to authorise the company to effect any reduction in its capital
except in accordance with the provisions contained in this Act.
(5) No debt incurred by the company
in excess of the limit imposed by clause (c) of sub-section (1) shall be valid
or effectual, unless the lender proves that he advanced the loan in good faith
and without knowledge that the limit imposed by that clause had been exceeded.
DISCLAIMER: THE
ARTICLE IS BASED ON THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING
AT THE TIME OF THE PREPARATION. IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT
AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING
INITIATIVE.
THE AUTHOR
– CS DEEPAK SETH (ASSOCIATE PARTNER HELPINGHANDS PROFESSIONALS LLP) AND
CAN BE REACHED AT CONTACTHHPRO@GMAIL.COM OR 9910248911.
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