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

Tejas Engineering Ltd defaulted last year in repaying public deposits accepted earlier, and the default still subsists. Its Board now proposes to acquire the entire business of Nilgiri Tools Ltd, structured as an acquisition of securities of that body corporate. Which statement is correct under section 186 of the Companies Act, 2013, assuming no exemption in sub-section (11) applies?

It cannot make the acquisition while the default subsists. Section 186(8) prohibits a company in default in repaying deposits or interest from making an acquisition until the default ends, regardless of whether the investment is within limits or has a special resolution or unanimous Board consent.

  1. AIt may proceed if a special resolution is passed
  2. BIt may proceed if all directors present consent at the Board meeting
  3. CIt may not make the acquisition while the deposit default subsistsCorrect
  4. DIt may proceed if the amount is within the limits in sub-section (2)

Explanation

Section 186(8) bars a company in default in repayment of deposits or interest from giving loans, guarantees, security or making an acquisition until the default subsists. This bar is independent of the monetary limits and of the approvals in sub-sections (3) and (5), so the other options fail.

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