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borrowing powers of a company

17 January 2011

How does a Company get Borrowing power, right to create charge on assets of company for boorrowing purposes etc. Is it through MOA or AOA?

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5 Replies

nidhigoel89 (Company Secretary ) (594 Points)
Replied 17 January 2011

Hello!

AOA and MOA may have a clause regarding the borrowing of money, and creating charge etc. And i guess every co is eligible for borrowing and creating charge on the assets subject to the provision of Co. Act,

Regards

Nidhi

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Charu (nil) (122 Points)
Replied 17 January 2011

Hello,

Apart from authorisation in the AOA, A public Ltd Co, or Pvt co. which is subsidary of a Public Co. company has to see whether the borrowed money together with monies already borrowed shall not exceed the aggregate of Paid up capital and its free reserves. If the borrowings are crossing the limit, it has to obtain prior consent of members at general meeting.

Also the right to create charge has to be previously authorised by the members at a General meeting . For this purpose, please refer to section 293(1) (a) and 293 (1) (d) of The Companies Act,1956.

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Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 19 January 2011

In my opinion, the company acquires its right to borrow, mortgage, etc. immediately on its incorporation even without any mention in MOA/AOA. Only when the borrowing exceeds the limits specified in Section 293(1)(d) you need to take the approval of shareholders.

Learned members view on this is solicited.

sameera (student) (61 Points)
Replied 19 January 2011

my opinion is as follows.

sec 293(1)(d) specifies what to do when borrowing powers used beyond certain limits as specified under that section. but prior to that company must have an express clause in MoA as an object except in the case of trading companies in which the law states that they will have an implied power and they get that power the moment they are incorporated.

borrowing powers get their birth only with an express clause in MoA with an exception as said above. sec 293(1)(d) comes into picture only that power used beyond certain limits

request to correct me if iam wrong

regards

sameera

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 19 January 2011

For Borrowing Power:- If the aggregate borrowings are incrising the agreegate of paidup capital and free reserves it requires the sanction of shareholders by way of Ordinary Resolution.

For creating charge:- Usually this power has already mentioned in the MOA of the company. Further, at the time of taking loan and creating charge Board Resolution is required. No additional formalities would be required.