04 January 2011
Interpretation of the words "Borrowed and to be borrowed" - does it mean that the borrowed amount includes the entire sanctioned amount or just only such amount which is actually drawdown by the company
Eg : I had a loan sanctioned for Rs.50cr but i made a drawdown of Rs.5cr,now i want to take another Rs.50 cr from some other bank . My paid-up cap & Reserves are Rs.75cr. Do i need to get shareholders consent?? What is the best possible solution???
In my opinion, the amounts borrowed by the Company will include the entire amount sanctioned to the Company, irrespective of the amount drawn.
As per section 293(1)(d) your company is required to obtain the consent of the members by way of an Ordinary Resolution in the General Meeting of the Company, before borrowing Rs.50 Crores from another bank.
Section 293 of the Companies Act,1956 is not applicable to an Indepedent Private Company.
This is my opinion that the amount borrowed by the Company will include the total limits sanctioned to it, however the amount can be drawn in one or more trenches as per the terms and conditions of the agreement and as may be mutually agreed upon between the parties.
Let us wait for the view of other eminent experts.....
Can u justify or elaborate your opinion with some case laws?
The expression used in section 293(1)(d) is " money to be borrowed,together with the monies already borrowed".
When the Bank sanction the amount, it means that you are entitled to draw that much amount. When you actually draw that may be matter of time. Hence in this case, you are eligibile to draw (borrow) upto 50 Cr. It means You have agreed to bound yourself with the liability of 50 cr. Usually, the banks requires creation of charge on entire sanctioned limit, irrespective of fact what amount is actually drawn therefrom. Hence, any further commitment to borrow loan of Rs. 50 cr will attarct section 293 of the Act, Unless you or Bank repudiate your claim for remaining undrawn amount.
In case of unsecured loans, the amount withdrawn by the Company shall be the amount borrowed by it.
05 January 2011
Despite the fact that the borrowers insist for creation of security to the full amount of loan sanctioned, I still feel the term "borrowed" will include only the amount actually drawn down by the company and not the amount of loan sanctioned to the Company. The company's liability is to the extent of drawn down amount only which is reflected in the company's accounts as well.
Only when the draw down exceeds the limits specified in 293(1)(d), the consent of members is required. May be due the terms used in section 293(1)(d) viz.,
"where the moneys to be borrowed together with the moneys already borrowed will exceed the aggregate of the paid up capital of the company and its free reserves.....",
we may obtain prior approval of the members in general meeting, if the loan is expected to cross the total limit specified in this sub-section.
Just the credit facility extended by the financier will not make the limit crossed unless it is drawn down.
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