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Informative note on provisions of Section 180 of

the Companies Act, 2013

Index

1. Text of the relevant Section 180 of the Companies Act, 2013 - Page 2-3

2. Our Briefings

I. Short Introduction - Page 4

II. Applicability - Page 4

III. Important Notes for understanding of the statute - Page 5-6

IV. Actions to be taken

By Companies (Private & Public Ltd) - Page 7

By Banks/ Financial Institutions - Page 8

V. Annexure

Draft of Special Resolution under Section 180(1)(a) - Page 9

Draft of Special Resolution under Section 180(1)(c) - Page 10

Created on 21st May, 2014 by Ms. Shweta Gokarn- ACS 30393


Contact Details: csshwetagokarn@gmail.com ||+91 9920 999 686
Shweta Gokarn & Co.
Company Secretaries

Restrictions on powers of Board Under section 180 of


the Companies Act, 2013
Below mentioned is the Section 180 of the Companies Act, 2013 as it is, for your reference. Our
briefings on the same are noted below this Section for your understanding.

Restrictions on the power of Board

180.

1. The Board of Directors of a company shall exercise the following powers only with the consent of
the company by a special resolution, namely:

a) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of
the company or where the company owns more than one undertaking, of the whole or
substantially the whole of any of such undertakings.
Explanation.For the purposes of this clause

(i) undertaking shall mean an undertaking in which the investment of the company exceeds
twenty per cent. of its net worth as per the audited balance sheet of the preceding financial
year or an undertaking which generates twenty per cent. of the total income of the company
during the previous financial year;

(ii) the expression substantially the whole of the undertaking in any financial year shall mean
twenty per cent. or more of the value of the undertaking as per the audited balance sheet of
the preceding financial year;

b) to invest otherwise in trust securities the amount of compensation received by it as a result of


any merger or amalgamation;

c) to borrow money, where the money to be borrowed, together with the money already
borrowed by the company will exceed aggregate of its paid-up share capital and free reserves,
apart from temporary loans obtained from the companys bankers in
the ordinary course of business:

Provided that the acceptance by a banking company, in the ordinary course of its business, of
deposits of money from the public, repayable on demand or otherwise, and withdrawable by
cheque, draft, order or otherwise, shall not be deemed to be a borrowing of monies by the
banking company within the meaning of this clause.

Explanation.For the purposes of this clause, the expression temporary loans means loans
repayable on demand or within six months from the date of the loan such as short-term, cash
credit arrangements, the discounting of bills and the issue of other short-term loans of a
seasonal character, but does not include loans raised for the purpose of financial expenditure of
a capital nature;

d) to remit, or give time for the repayment of, any debt due from a director

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Company Secretaries

2. Every special resolution passed by the company in general meeting in relation to the exercise of the
powers referred to in clause (c) of sub-section (1) shall specify the total amount up to which monies
may be borrowed by the Board of Directors.

3. Nothing contained in Clause (a) of Sub- Section (1) shall affect


(a) the title of a buyer or other person who buys or takes on lease any property, investment or
undertaking as is referred to in that clause, in good faith; or
(b) the sale or lease of any property of the company where the ordinary business of the
company consists of, or comprises, such selling or leasing.

4. Any special resolution passed by the company consenting to the transaction as is referred to in
clause (a) of sub-section (1) may stipulate such conditions as may be specified in such resolution,
including conditions regarding the use, disposal or investment of the sale proceeds which may result
from the transactions:

Provided that this sub-section shall not be deemed to authorise the company to effect any reduction
in its capital except in accordance with the provisions contained in this Act.

5. No debt incurred by the company in excess of the limit imposed by clause (c) of sub-section (1) shall
be valid or effectual, unless the lender proves that he advanced the loan in good faith and without
knowledge that the limit imposed by that clause had been exceeded.

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Company Secretaries

Our Briefings:
Introduction

Section 180 of the Companies Act, 2013 corresponds to section 293 of the companies Act,
1956. This section is covered under notification which was issued by Ministry of Corporate
Affairs on 12th September, 2013 and the said section has been brought into effect from 12th
September 2013.

Applicability

Section 180 is applicable on all Companies either private Companies or public Companies. The
provisions are applicable with effect from 12th September, 2013.

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Company Secretaries

Important Notes and explanations wrt Section 180

- The new section 180 (Section 293 of the earlier Act) pertains to powers of the Board of
Directors which can be exercised only at a general meeting by way of special resolution
to be passed for the purpose. Section 293(1)(d) pertained to borrowing powers of the
companies i.e. the amount upto which the companies could borrow was laid down in
the ordinary resolution which was approved by the members in the general meeting.

- Companies are allowed to borrow any sums of monies upto the paid up share capital
and free reserves of the company. However any borrowal in excess of the combination
of these two limits i.e. paid up share capital and free reserves, will require approval of
the members in the general meeting by way of Special Resolution. Under old
Companies Act, 1956, the resolution passed in the general meeting in this regard, was
not necessarily be Special Resolution.

- Earlier 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 upto 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.

- A combined reading of the above section implies that it has become necessary for
private companies to obtain approval of their members by way of special resolution
passed at the general meeting that the company is allowed to borrow monies in excess
of the paid up share capital and free reserves of the company, specifying thereby the
maximum amount upto which monies could be borrowed by the company.

- Initially there was lot of confusion in the industry whether such Special resolutions will
be required for the loans taken or borrowings made, securities/ charges created by
Company (Private as well as Public) before implementation of this Section. Ministry of
Corporate Affairs vide its Circular No. 04/2014 dated 25th March, 2014 clarified that the
resolutions passed under Section 293 of the Companies Act, 1956 prior to 12th
September, 2013 with reference to borrowings and/ or creation of Security on assets of
Company will be treated as sufficient compliance of requirements of Section 180 of the
Companies Act, 2013 for a period of one year from the date of notification of Section 180
i.e. from one year from 12th September, 2013.

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Company Secretaries

Considering this clarification issued by Ministry of Corporate Affairs, all working and
active private companies will be required to pass the necessary special resolutions in
this regard.

- Further in case of Public Limited Company, if the Company has already passed an
ordinary resolution in a general meeting in this regards before commencement of this
rule, however if the resolution was ordinary or no any specific amount was mentioned
with respect to borrowing limits in the resolution, then such Public Limited Company is
also required to pass Special Resolutions specifying the exact amount upto which Board
of Directors are authorized to borrow and/or create a security on assets of Company.

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1. Actions to be taken

By Companies:-

Private Limited Company:

1) Check if the Company has any borrowings/ security created which is beyond the
prescribed limits of Section 180 of the Companies Act, 2013.
2) If yes, then call a meeting of members of the Company and pass necessary Special
Resolution.
3) File the Certified Copies of such special resolutions with Registrar of Companies in E-
Form MGT-14 within 30 days from the date of passing of such resolutions.
4) Submit the Certified Copies of such special resolutions with your lender Bank/ Financial
Institution.

Public Limited Company:

5) Check, if the Company has any borrowings/ security created which is beyond the
prescribed limits of Section 180 of the Companies Act, 2013.

1) If yes, then check whether the resolutions passed then, were Ordinary or Special.
Further also check, if the specific amount upto which Board can borrow/ create security
has been mentioned in the resolution passed.

2) If the resolutions passed earlier i.e. before commencement of this rule (before 12th
September, 2013) were Special Resolutions and specific amount upto which Board can
borrow has been mentioned in the Special Resolution then no need to pass any further
resolution.

3) However, in either of the cases i.e. if the earlier resolutions were Ordinary resolutions or
if the earlier resolutions were Special but no specific amount was mentioned, then
Company should call a general meeting of its members by giving proper notice and pass
necessary Special resolutions.

4) File the Certified Copies of such special resolutions with Registrar of Companies in E-
Form MGT-14 within 30 days from the date of passing of such resolutions.

5) Submit the Certified Copies of such special resolutions with your lender Bank/ Financial
Institution.

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Company Secretaries

By Banks / Financial Institutions (Lenders):-

It is evident that Banks or Financial Institutions need to be more vigilant while giving loans to
the Private as well as Public Limited Companies.

One need to ensure that the Borrower Company is complying with the provisions of this section
with respect to the limits prescribed and has taken necessary approval in the form of Special
Resolution from Shareholders in a General Meeting where the credit facility is exceeding the
prescribed limits.

In case, where the loan amount is within the prescribed limits, Banks should ask for a Certified
Copies of two resolutions, viz:-

1. Resolution passed in the Board meeting authorizing the Board members to borrow such
amount which is within the limits as prescribed in Section 180 (1)(c) on behalf of the Company
2. Resolution passed in the Board meeting under Section 180(1)(a) authorizing Board to create
a security/ Charge on assets of Company.

And where the borrowings are going beyond the prescribed limits, apart from CTC of Board
resolution, Banks should also insist for Certified Copy of a Special Resolutions (Drafts Annexed)
passed at the general meeting of the members of Company.

Further the lending Bank can also ask for Certified Copies of such Special resolutions in case of
its existing Corporate Borrowers.

Enclosure

1. Draft of Special Resolution under Section 180(1)(a)


2. Draft of Special Resolution under Section 180(1)(c)

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Disclaimer: The contents provided in this note are meant for information only. They should not to be construed
as canvassing or soliciting work.

The material contained in this article is general information and does not amount to advice on any particular
matter. The application and impact of laws can vary widely based on the specific facts involved. Given the
changing nature of laws, rules and regulations, and the inherent hazards of electronic communication, there
may be delays, omissions or inaccuracies in information contained in this article. The information contained in
this article should not be used as a substitute for consultation with professional or other competent advisers. You
are advised to seek appropriate professional advice before acting on the basis of any information contained
herein.

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Company Secretaries

Annexure
Draft of Special Resolution to be passed in General Meeting of the Members under Section
180(1)(a)

RESOLVED that pursuant to Section 180 (1) (a) and other applicable provisions, if any, of the
Companies Act, 2013, consent of the Company be and is hereby given to the Board of Directors
of the Company (hereinafter referred to as the Board which term shall be deemed to include
any Committee thereof) to create such charges, mortgages and hypothecations in addition to
the existing charges, mortgages and hypothecations created by the Company, on such movable
and immovable properties, both present and future, and in such manner as the Board may
deem fit, together with power to take over the substantial assets of the Company in certain
events in favour of banks/financial institutions, other investing agencies and trustees for the
holders of debentures/ bonds/other instruments to secure rupee/foreign currency loans and/or
the issue of debentures whether partly/fully convertible or non-convertible and/or securities
linked to equity shares and/or rupee/ foreign currency convertible bonds and/or bonds with
share warrants attached (hereinafter collectively referred to as Loans) provided that the total
amount of Loans together with interest thereon, additional interest, compound interest,
liquidated damages, commitment charges, premia on pre-payment or on redemption, costs,
charges, expenses and all other monies payable by the Company in respect of the said Loans,
shall not, at any time exceed Rs. __________ (Rupees _______________).

RESOLVED FURTHER that for the purpose of giving effect to this resolution, the Board or any
Committee thereof be and is hereby authorized to finalize, settle and execute such documents
/deeds / writings / papers / agreements as may be required and to do all such acts, deeds
,matters and things, as it may in its absolute discretion deem necessary, proper or desirable and
to settle any question, difficulty or doubt that may arise in regard to creating mortgage / charge
as aforesaid.

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Company Secretaries

Draft of Special Resolution to be passed in General Meeting of the Members under Section
180(1)(c)

RESOLVED THAT pursuant to the provisions of Section 180(1)(C) of Companies Act, 2013 or
any amendment or modifications thereof, the Board of Directors of the Company be and is
hereby authorised to borrow from time to time all such sums of monies as they may deem
necessary for the purpose of business of the Company notwithstanding that monies to be
borrowed together with the monies already borrowed by the Company may exceed the
aggregate of the Paid-up-capital of the Company and its free reserves i.e. to say reserves not
set apart for any specific purpose (apart from temporary loans as defined in the said provisions
of the Act) obtained from the Company Bankers in the ordinary course of business provided
that the total amount upto which monies to be borrowed by the Board of Directors shall not
exceed the aggregate of Rs. __ and the paid-up-capital and free reserves of the Company.

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