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    Borrowing Power of Company PDF

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    manishaamba7547
    This document discusses borrowing powers under company law. It notes that trading companies have an implied power to borrow, while non-trading companies must be expressly authorized to borrow in their memorandum and articles of association. It also discusses unauthorized or "ultra vires" borrowings, noting that borrowings beyond a company's authorized amount are void, though lenders may have remedies against directors or seek to recover funds. The document provides examples of cases related to ultra vires borrowings and the liability of companies and directors. Finally, it briefly outlines different types of borrowings and forms of security that can be provided.

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    Borrowing Power of Company PDF

    Uploaded by

    manishaamba7547
    1K views12 pages
    This document discusses borrowing powers under company law. It notes that trading companies have an implied power to borrow, while non-trading companies must be expressly authorized to borrow in their memorandum and articles of association. It also discusses unauthorized or "ultra vires" borrowings, noting that borrowings beyond a company's authorized amount are void, though lenders may have remedies against directors or seek to recover funds. The document provides examples of cases related to ultra vires borrowings and the liability of companies and directors. Finally, it briefly outlines different types of borrowings and forms of security that can be provided.

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    This document discusses borrowing powers under company law. It notes that trading companies have an implied power to borrow, while non-trading companies must be expressly authorized to borrow in their memorandum and articles of association. It also discusses unauthorized or "ultra vires" borrowings, noting that borrowings beyond a company's authorized amount are void, though lenders may have remedies against directors or seek to recover funds. The document provides examples of cases related to ultra vires borrowings and the liability of companies and directors. Finally, it briefly outlines different types of borrowings and forms of security that can be provided.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    1K views12 pages

    Borrowing Power of Company PDF

    Uploaded by

    manishaamba7547
    This document discusses borrowing powers under company law. It notes that trading companies have an implied power to borrow, while non-trading companies must be expressly authorized to borrow in their memorandum and articles of association. It also discusses unauthorized or "ultra vires" borrowings, noting that borrowings beyond a company's authorized amount are void, though lenders may have remedies against directors or seek to recover funds. The document provides examples of cases related to ultra vires borrowings and the liability of companies and directors. Finally, it briefly outlines different types of borrowings and forms of security that can be provided.

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    BORROWING POWERS

    SOURCES - M. C. KUCHHAL, ICSI (COMPANY


    LAW), The I C Act 1956
    PRESENTED BY:
    NITIN MANGLA
    701
    MBA
    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.
    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)}.
    UNAUTHORIZED OR ULTRA VIRES
    BORROWINGS:

    Such borrowings may be as:

    1.Borrowings ultra vires the company.

    2.Borrowings ultra vires the directors.


    1. Borrowings which are ultra vires the company:
    the basic principle of company law is that any act which is ultra
    vires (unauthorized) the company is, void.
    The lender cannot sue the company for the repayment of the
    loan.
    But the following remedies shall be available to such a lender:

    (a). Injunction and recovery: he can trace and identify the money
    lent

    (b). Subrogation: where the money of an ultra vires borrowing has been
    used to pay off lawful debts of the company, the lender is entitled to the
    creditor

    (c). Suit against director: the lender may be able to sue the director
    for breach of warranty of authority.
    2. Borrowings which are ultra vires the
    directors:
    In case of borrowings ultra vires the directors
    but 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
    e.g. Company is authorized to borrow only 5 cr. ₨
    but it borrowed via any unauthorized activity more
    than this i.e.. 5.5 cr. Rs then this access amount is
    ultra vires to company.
    CASE I

    V.K.R.S.T. firm V. Oriental Investment Trust Ltd.


    Under the authority of the company, its MD
    borrowed large sums of money misappropriate it.
    The company was held liable. Where the borrowing
    is within the powers of the company, the lender will
    not be prejudiced simply because its officer have
    applied the loan to unauthorized activities, if the
    lender had no knowledge of the intended misuse.
    CASE II

    Krishan Kumar & others Vs. State Bank of India & others
    The company borrowed an amount of Rs. 5 Lakhs from
    the bank under a promissory note.
    In the suit for recovery the company contended the Pro.
    Note was the executed by the chairman without the
    resolution of the board of directors as required under
    {sec292(1)(c)} of the act.
    Rejecting this contention the PATNA High Court held that
    where the directors borrow funds without their
    authorization but the money is used for company’s
    benefit, the company has liability to repay.
    TYPES OF BORROWINGS

    I. Long term borrowings:

    II. Medium term borrowings:

    III. Short term borrowings:


    Security for borrowings:
    Security given by a company falls under
    two categories:

    1.FIXED CHARGE

    2.FLOATING CHARGE
    Borrowing on security:
    i. Movable property
    ii. Bonds
    iii. Promissory notes
    iv. Bills of exchange
    v. Debentures
    vi. Specific part of property
    vii.A mortgage of goods
    viii.Security of book debts
    ix.Charge on calls but not paid. Etc…

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