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CS Executive · Company Law and Practice · Board Composition and Powers of the Board

Meru Foods Ltd has paid-up share capital of Rs 40 crore, free reserves of Rs 30 crore and securities premium of Rs 10 crore. Existing borrowings (excluding temporary loans) are Rs 70 crore. The Board proposes a fresh term loan of Rs 20 crore for building a new plant. What is the position?

A special resolution of members is needed. The borrowing limit is paid-up capital, free reserves and securities premium, totalling Rs 80 crore. Existing borrowings of Rs 70 crore plus the new Rs 20 crore loan make Rs 90 crore, which exceeds the limit.

  1. ASpecial resolution of members is needed, as total borrowings of Rs 90 crore would exceed Rs 80 croreCorrect
  2. BOnly a Board resolution is needed, as the loan is below the paid-up capital
  3. CNo approval is needed because the loan is for a capital purpose
  4. DSpecial resolution is needed only if the loan exceeds Rs 100 crore

Explanation

The limit is paid-up capital plus free reserves plus securities premium: 40+30+10 = Rs 80 crore. Existing 70 plus new 20 = Rs 90 crore, which exceeds the limit. Hence a special resolution is needed. Counting only paid-up capital or ignoring securities premium gives wrong limits.

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