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

Tarang Industries Ltd has defaulted on repayment of a public deposit accepted earlier and the default subsists. It wishes to acquire securities of a target company by purchase and its Board and members have passed all required resolutions. Which statement is correct under Section 186?

Tarang cannot make the acquisition while the deposit default subsists. Section 186(8) prohibits a company in default in repaying deposits or paying interest from giving loans or guarantees, providing security or making an acquisition until the default ends; shareholder approval or disclosure does not remove the bar.

  1. AIt may proceed because member approval cures the default
  2. BIt may not make the acquisition until the default is no longer subsistingCorrect
  3. CIt may proceed if it discloses the default in the financial statement
  4. DIt may proceed if the acquisition is below the prescribed limits only after paying the minimum fine

Explanation

Section 186(8) bars a company in default in repayment of deposits or interest thereon from giving loans, guarantees, providing security or making an acquisition till the default subsists. Resolutions or disclosure do not override this bar. Hence the acquisition must wait until the default ends.

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