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CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Debt and Procedural Aspects

Rahul Agro Industries Ltd. has an overdraft and cash credit arrangement with its bank. Under Explanation II to Section 179, what does the exercise of the borrowing power mean in dealings between a company and its bankers?

It means the arrangement made with the bankers for borrowing by overdraft, cash credit or otherwise, not the actual day-to-day operation of those accounts. The Board therefore approves the facility itself and need not pass a resolution for every withdrawal made within it.

  1. AThe arrangement made with the bankers for borrowing by overdraft, cash credit or otherwise, and not the actual day-to-day operation of the accountsCorrect
  2. BEvery single withdrawal made on the overdraft account
  3. COnly borrowings that exceed the paid-up capital and free reserves
  4. DOnly borrowings that are secured by a charge on the assets

Explanation

Explanation II states that the borrowing power in dealings with bankers means the arrangement made for borrowing, not the daily operation on the overdraft or cash credit. So the Board need not pass a resolution for each withdrawal; the arrangement itself is what is approved.

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