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

Tarang Power Ltd has a term loan outstanding from a public financial institution, with no default in instalments or interest. Its total loans and investments, including a proposed acquisition of securities of Sagar Ports Ltd, will be within the section 186(2) limit. Which is correct for the Board resolution sanctioning the acquisition?

The Board resolution must be passed with the consent of all directors present. Prior approval of the public financial institution is not needed because the total stays within the limit and there is no default on the term loan.

  1. APrior approval of the public financial institution is required, and a special resolution is needed
  2. BPrior approval of the public financial institution is not required, but the Board resolution must be passed with consent of all directors presentCorrect
  3. CNeither unanimous Board consent nor institution approval is required
  4. DPrior approval of the institution is required but Board consent can be by majority

Explanation

Section 186(5) requires a Board resolution with consent of all directors present. The proviso waives prior approval of the public financial institution when aggregate amounts stay within the section 186(2) limit and there is no default in the term loan. Both conditions hold here, so only unanimous consent of directors present is needed.

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