Companies Act 2013: Borrowing Powers

Section 180 of the Companies Act, 2013 corresponds to section 293 of the companies Act, 1956. Section 293 of the Companies Act, 1956 was applicable only to public companies i.e. private limited companies were exempted from this requirement and therefore they could borrow any sums of money up to any limit without the need of seeking any approval from the members of the company. Now, Section 180 is applicable to all companies i.e. public as well as private. So now onwards even private companies have to seek the approval of their members if they are intending to borrow monies in excess of their paid up share capital and free reserves. 

According to section 180(1)(c) –

The Board of directors of a company shall exercise the following power only with the consent of the company by a Special Resolution (SR):

Borrowing of money if –

Money already borrowed, together with moneys proposed to be borrowed will exceed the aggregate of paid-up share capital and free reserves

*  ‘Temporary loans’ obtained from company’s bankers in the ordinary course of business are not considered as borrowings.

*  ‘Temporary loans’ means:

-        loans repayable on demand; or

-        loans repayable within 6 months of the date of the loan.

*  However, ‘temporary loans’ does not include loans raised for financing capital expenditure.

*  If the Board borrows money in excess of the limits imposed under section 180(1)(c)

of the Companies Act, 2013 shall not be valid and effectual against the company, unless the lender proves that –

(a) he lent the money in good faith; and

(b) he lent the money without having any knowledge that the limit imposed under section 180(1)(c) of the Companies Act, 2013 had been exceeded.

*  SR passed by the members shall specify the total amount upto which moneys may be borrowed by the Board.

*  If SR passed by the members does not specify the maximum amount which can be borrowed by the Board, SR shall be void.

Contributed by Shruti Agarwal