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CS Executive · Company Law and Practice · Meetings of Board and its Committees

Lotus Pharma Ltd's Board has arranged an overdraft limit with its bank. The finance head asks whether each day's drawing under the limit needs a separate Board resolution under section 179(3)(d). What is the correct position?

Only the arrangement with the bank, such as the overdraft or cash credit facility, is the exercise of the borrowing power requiring a Board resolution. Under Explanation II to section 179, the actual day-to-day operation of the account does not require a separate resolution.

  1. AEach daily drawing needs a separate Board resolution
  2. BOnly the arrangement with the bank for the borrowing is the exercise of the power, not the day-to-day operation of the accountCorrect
  3. CNo Board resolution is ever needed for any bank overdraft arrangement
  4. DEach drawing needs a special resolution of members

Explanation

Explanation II to section 179 says that in dealings with bankers, exercise of the borrowing power means the arrangement made with the bank for overdraft or cash credit, not the actual day-to-day operation of the account. So the Board resolves on the arrangement once; daily drawings need no fresh resolution.

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