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

Bharat Steel Ltd is in default in repayment of deposits it accepted earlier, and the default is continuing. Its Board wishes to make an acquisition of securities of a target to take over its business. What is the legal position under section 186(8)?

Bharat Steel cannot make the acquisition while the default subsists. Section 186(8) prohibits a company in default in repaying deposits or paying interest from making an acquisition until the default is remedied, and no resolution or unanimous Board approval overrides this bar.

  1. AIt may proceed if a special resolution is passed
  2. BIt may proceed if the Board is unanimous
  3. CIt cannot make the acquisition until the default is no longer subsistingCorrect
  4. DIt may proceed if the target is a private company

Explanation

Section 186(8) bars a company in default in repayment of deposits or payment of interest from giving loans or guarantees, providing security or making an acquisition while the default subsists. Neither shareholder nor Board approval cures it. The restriction lifts only when the default ends.

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