In reckoning the prescribed limits under section 372A of the Companies Act, 1956 whether the paid up capital and free reserves as they stand at the end of the previous financial year in the Audited Balance sheet should be considered or the amount standing to the credit of the Paid up capital and free reserves on the date on which the proposal to make loan/ give gaurantee/ make investment is considered by the Board????? Please clarify.....
"Free reserves" means those reserves which, as per the latest audit balance sheet of the company, are free for distribution as dividend and shall include balance to the credit of securities premium account but shall not include share application money.[Explanation to section 372A(10)]
I am of the same opinion that the paid up capital and free reserves as per the latest audited balance sheet of the Company should be taken for reckoning the limits under section 372A. However, our advocate says :
Suppose the Company has issued shares after 31/03/2010 at premium then the premium amount should be added to the reserves for reckoning the limit and the paid up capital as on 31/03/2010 should be taken into consideration......
Is this possible???????
In my opinion both the Paid up capital and free reserves should be as per the Latest Audited Balance sheet! Am i correct or our lawyer please clarify?????
For Free Reserve the section 372A says that it will be taken as per latest audited balance sheet but silent about paid up capital.
My personal views is that if free reserve is taken as per audited balance sheet then paid up capital will also be taken as per latest audited balance sheet.
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