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CS Professional · Corporate Restructuring, Valuation and Insolvency · Acquisition of Company or Business

Arjun Industries Ltd has paid-up share capital of ₹50 crore, free reserves of ₹30 crore and securities premium of ₹20 crore. It has no earlier loans or investments in other bodies corporate. It plans to acquire shares of an unrelated company, Vistara Ltd, for ₹90 crore. Under section 186 as given, what is required for this acquisition?

A special resolution in general meeting is required. The limit is the higher of ₹60 crore (60% of ₹100 crore) and ₹50 crore, so ₹60 crore. The proposed ₹90 crore acquisition exceeds it, so prior special resolution authorisation is needed.

  1. ANo further approval, as the limit is not crossed
  2. BA special resolution in general meeting, because ₹90 crore exceeds the higher of 60% of the aggregate (₹60 crore) and 100% of free reserves plus securities premium (₹50 crore)Correct
  3. CA special resolution, because ₹90 crore exceeds 60% of free reserves alone
  4. DOnly a board resolution, because it exceeds the limit of ₹100 crore

Explanation

Aggregate of paid-up capital, free reserves and securities premium is ₹100 crore, and 60% of it is ₹60 crore. 100% of free reserves plus securities premium is ₹50 crore. The higher limit is ₹60 crore, and ₹90 crore exceeds it, so a special resolution is needed under sub-section (3). The alternative that treats ₹100 crore as the limit wrongly uses the whole aggregate.

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