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

Meridian Holdings Ltd has paid-up share capital of Rs 40 crore, free reserves of Rs 30 crore and securities premium of Rs 10 crore. It has so far made no loans or investments. It proposes to buy shares of an unrelated listed company, Orchid Pharma Ltd, for Rs 70 crore. Assuming no exemption applies, what is required under section 186 of the Companies Act, 2013?

A prior special resolution in a general meeting is needed. The limit is the higher of 60% of Rs 80 crore, which is Rs 48 crore, or Rs 40 crore. The Rs 70 crore investment exceeds Rs 48 crore, so section 186(3) requires special resolution approval.

  1. AOnly a Board resolution with the consent of all directors present, since the limit is not crossed
  2. BPrior special resolution in a general meeting, since the limit is crossedCorrect
  3. CNo approval, since acquisition of securities is outside section 186
  4. DOnly disclosure in the financial statements

Explanation

Limit is the higher of 60% of (40+30+10)=80, i.e. Rs 48 crore, or 100% of free reserves plus securities premium (30+10)=Rs 40 crore. The higher is Rs 48 crore. The proposed Rs 70 crore exceeds it, so section 186(3) requires prior authorisation by special resolution. The Board-only option would apply only if the limit were not exceeded.

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