BORROWINGS

Presented By: FCS Ashok Tyagi

E-130, Greater Kailash 1,
New Delhi
E-Mail: atyagi53@gmail.com
Mob: 09810070575
 BORROWINGS
The term “Borrowing” is not defined in Companies Act, 2013.

BORROWING POWERS: Section 180(1)(c) of Companies Act, 2013

(corresponds to Section 293 of the Companies Act, 1956)

Section 180 (1): - The Board of Directors of a company shall exercise the following powers
only with the consent of the company by a special resolution, namely:—

(c) to borrow money, where the money to be borrowed, together with the money already
borrowed by the company will exceed aggregate of its paid-up share capital and free reserves,
apart from temporary loans obtained from the company’s bankers in the ordinary course of
business:

Provided that the acceptance by a banking company, in the ordinary course of its business, of
deposits of money from the public, repayable on demand or otherwise, and withdrawable by
cheque, draft, order or otherwise, shall not be deemed to be a borrowing of monies by the
banking company within the meaning of this clause.
Explanation: -

For the purposes of this clause, the expression “temporary loans” means loans repayable on
demand or within six months from the date of the loan such as short-term, cash credit
arrangements, the discounting of bills and the issue of other short-term loans of a seasonal
character, but does not include loans raised for the purpose of financial expenditure of a capital
nature;

Section 180(2) Every special resolution passed by the company in general meeting in relation
to the exercise of the powers referred to in clause (c) of sub-section (1) shall specify the
total amount up to which monies may be borrowed by the Board of Directors.

Section 180(5) No debt incurred by the company in excess of the limit imposed by clause (c)
of sub-section (1) shall be valid or effectual, unless the lender proves that he advanced the loan in
good faith and without knowledge that the limit imposed by that clause had been exceeded.
Conclusion: -

So a combined reading of the above section implies that it has become necessary for
private/public companies to obtain approval of their members by way of special resolution
passed at the general meeting that the company is allowed to borrow monies in excess of the paid
up share capital and free reserves of the company, specifying thereby the maximum amount upto
which monies could be borrowed by the company. Since the operative part of section 180(1)(c)
does not mention “after the commencement of this Act” it means all working and active private
companies will be required to pass the necessary special resolution in this regard. Since the
section has been made effective from 12th September 2013, it would be imperative for private
companies to get such special resolution passed at the earliest, since sub-section (5) above clearly
stipulates that the onus of complying the provisions of this section is upon the private company
since the lender can claim that he has acted in good faith. 
 Borrowing Powers of Company
[Section 180(1)(c)]
 If:
Borrowings [Present (+) Proposed] > [Paid-up Share
Capital (+) Free Reserves];
 Then: SR Approval required
(words used in Section are “exercise the powers only
with the consent by SR”)
 Companies Covered: Public as well as Private;
 BorrowingsExclusion: Temporary Loans obtained
from Companies Bankers in ordinary course of
Business
 Case Study
Particulars Case I Case 2 Case 3 Case 4
(Rs. In Cr.) (Rs. In Cr.) (Rs. In Cr.) (Rs. In Cr.)
Equity Share 100 100 100 100
Capital
Pref. Share 50 50 50 50
Capital
Free Reserves 20 20 20 20
Total 170 170 170 170
Present 120 120 120 120
Borrowings
Proposed 30 40 50 60
Borrowings
Total 150 160 170 180
Resolutions BOD BOD BOD BOD (+) SR
 Particulars Case I Case 2 Case 3 Case 4
(Rs. In Cr.) (Rs. In Cr.) (Rs. In Cr.) (Rs. In Cr.)
Paid up Capital 150 150 150 150

Free Reserves 20 20 20 20
Total 170 170 170 170
Working Capital loan 50 50 50 50
(repayable on demand -
Existing) from GE Capital Ltd.
CC from PNB (repayable on 120 120 120 120
demand - Existing)
6 Months loan for Plant & 30 40 50 60
Mach. from PNB (Proposed)
24 Months loan for Plant & 10 20 30 40
Mach. from PNB (Proposed)
Total 210 230 250 270
Eligible Borrowings 90 110 130 150
Resolutions BOD BOD BOD BOD
THANK YOU

FCS ASHOK TYAGI