Borrowing powers

9,733 views

Published on

Published in: Business, Economy & Finance
0 Comments
4 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
9,733
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
337
Comments
0
Likes
4
Embeds 0
No embeds

No notes for slide

Borrowing powers

  1. 1. BORROWING POWERSSOURCES - M. C. KUCHHAL, ICSI (COMPANYLAW), The I C Act 1956 PRESENTED BY: NITIN MANGLA 701 MBA
  2. 2. BORROWING: Borrow is to receive with an implied or expressed intention of returning the same. Borrowing implies repayment in some time and under some circumstances.
  3. 3. BORROWING POWERS OF COMPANY A trading company has an implied power to borrow money. Non-trading companies must be expressly authorized to borrow by their memorandum and articles of association. A private company is entitled to borrow immediately after its incorporation. A public company cannot borrow until it secures the ‘certificate to commence business’{sec 149(1)}.
  4. 4. UNAUTHORIZED OR ULTRA VIRESBORROWINGS:Such borrowings may be as:1.Borrowings ultra vires the company.2.Borrowings ultra vires the directors.
  5. 5. 1. Borrowings which are ultra vires the company:the basic principle of company law is that any act which is ultravires (unauthorized) the company is, void.The lender cannot sue the company for the repayment of theloan.But the following remedies shall be available to such a lender:(a). Injunction and recovery: he can trace and identify the moneylent(b). Subrogation: where the money of an ultra vires borrowing has beenused to pay off lawful debts of the company, the lender is entitled to thecreditor(c). Suit against director: the lender may be able to sue the directorfor breach of warranty of authority.
  6. 6. 2. Borrowings which are ultra vires thedirectors: In case of borrowings ultra vires the directorsbut intra vires the company; The company may, if it wishes, in general meeting ratify such act of the directors, in which case the loan shall become perfectly valid and binding upon the company. But if company decides not to ratify the director’s act then the normal principles of the agency will protect the LENDER. Company can claim from the directors. The lender may sue the directors directly
  7. 7. e.g. Company is authorized to borrow only 5 cr. ₨but it borrowed via any unauthorized activity morethan this i.e.. 5.5 cr. Rs then this access amount isultra vires to company.CASE IV.K.R.S.T. firm V. Oriental Investment Trust Ltd.Under the authority of the company, its MDborrowed large sums of money misappropriate it.The company was held liable. Where the borrowingis within the powers of the company, the lender willnot be prejudiced simply because its officer haveapplied the loan to unauthorized activities, if thelender had no knowledge of the intended misuse.
  8. 8. CASE IIKrishan Kumar & others Vs. State Bank of India & othersThe company borrowed an amount of Rs. 5 Lakhs fromthe bank under a promissory note.In the suit for recovery the company contended the Pro.Note was the executed by the chairman without theresolution of the board of directors as required under{sec292(1)(c)} of the act.Rejecting this contention the PATNA High Court held thatwhere the directors borrow funds without theirauthorization but the money is used for company’sbenefit, the company has liability to repay.
  9. 9. TYPES OF BORROWINGSI. Long term borrowings:II. Medium term borrowings:III. Short term borrowings:
  10. 10. Security for borrowings:Security given by a company falls undertwo categories:1.FIXED CHARGE2.FLOATING CHARGE
  11. 11. Borrowing on security:i. Movable propertyii. Bondsiii. Promissory notesiv. Bills of exchangev. Debenturesvi. Specific part of propertyvii.A mortgage of goodsviii.Security of book debtsix.Charge on calls but not paid. Etc…

×