Page 219 - DCOM106_COMPANY_LAW

Company Law

Notes 13.4 Summary

All investments made by a company on its own behalf shall be made and held by it in its
own name.

If the investments are made by a company, whose principal business consists of the buying
and selling of shares or securities, the company may hold its investments in any other
name.
A company may deposit with, or transfer to, any person any shares or securities, by way
of security for the repayment of any loan advanced to the company for the performance of
any obligation undertaken by it.
A power to borrow, whether express or implied, includes the power to charge the assets of
the company by way of security to the lender.
The power to borrow money is generally exercised by the directors but Articles normally
provide for certain restrictions on their power to borrow.

Section 292 empowers the Board to borrow money on behalf of the company by means of
resolution passed at the meeting of the Board.

13.5 Keywords

Borrowing: A power to borrow, whether express or implied, includes the power to charge the
assets of the company by way of security to the lender.
Investment: The Act does not define the term ‘investment’ though it uses the same in a number
of sections.
Rule of Majority: The principle of rule by majority is made applicable to the management of
affairs of the company.
Suit against the Director: The lender may claim damages from the directors and sue them
personally for a breach of warranty of authority

13.6 Review Questions

1. What are the conditions imposed by section 372A of the Companies Act, 1956 as regards
investments of a company?
2. Discuss the provisions of the Companies Act, 1956 relating to inter-corporate investments.

3. What are the provisions of the Companies Act, 1956 as regards purchase by a company of
shares of other companies?
4. Discuss the law and state the procedure relating to inter-corporate loans.

5. What are the legal requirements which a company must comply with while borrowing?
6. What is ultra vires borrowing? What remedies, if any, are open to a lender if a company
resorts to ultra vires borrowing?

7. What are the restrictions imposed on the borrowing powers of the Board of directors?
8. What is a floating charge? Distinguish it from a fixed charge.
9. Comment on the characteristics of a floating charge. When does such a charge crystallise
into a fixed charge?

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