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

Nirmaan Infra Ltd has accepted public deposits and has been in default of repayment of a matured deposit for three months. It proposes to give a guarantee for a loan taken by its associate, within the section 186(2) limits, and to acquire shares of another company. Which is correct?

Both the guarantee and the acquisition are barred while the deposit default continues. Section 186(8) prohibits a defaulting company from giving any loan, guarantee or security or making an acquisition until the default is cured, regardless of whether the section 186(2) limits are exceeded.

  1. ABoth are allowed because the limits are not exceeded
  2. BThe guarantee is allowed but the acquisition is barred
  3. CBoth are barred while the default subsistsCorrect
  4. DBoth are barred permanently once a default has occurred

Explanation

Sub-section (8) bars a company in default in repayment of deposits or interest from giving any loan, guarantee, security or making an acquisition while the default is subsisting. Being within limits is irrelevant. The bar lifts once the default is cured, so it is not permanent.

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