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CMA Final · Corporate and Economic Laws · Company Formation and Conversion

Kaveri Agro Producers, a Producer Company, has paid-up capital of Rs 6 crore and free reserves of Rs 4 crore. It wishes to invest, by itself together with its subsidiaries, in shares of an ordinary company (not a Producer Company and not covered by the specific objective-promotion provisions). Without any special approval, what is the maximum investment permitted?

The maximum is Rs 3 crore. A Producer Company, by itself or with its subsidiaries, may invest up to thirty per cent of paid-up capital plus free reserves, which is 30% of Rs 10 crore. More requires a special resolution and prior Central Government approval.

  1. ARs 1.2 crore
  2. BRs 3 croreCorrect
  3. CRs 4 crore
  4. DRs 6 crore

Explanation

The limit is thirty per cent of the aggregate of paid-up capital and free reserves. Aggregate = 6 + 4 = Rs 10 crore; 30% of 10 = Rs 3 crore. Rs 1.2 crore wrongly applies 30% to free reserves only (4 x 30%), and Rs 6 crore wrongly applies 60%/uses paid-up capital alone.

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