The Articles of Association generally provide that the Board of Directors may, by a resolution passed at the Board meeting, borrow money for the purpose of the company. The Articles may specify the maximum limit on the borrowing powers of directors and place other restrictions on the exercise of such powers.
The borrowing power of the Board are also subject to the provisions of Sections 292 and 293 of the Act. Section 292 lays down that the powers of the Board to issue debentures or to borrow money otherwise than through debentures must be exercised by means of resolutions passed at Board meeting. However, the Board may, by a resolution passed at a meeting, delegate such powers to a Committee of Directors, the Managing Director, Manager or any other principal officer of the company on such conditions as it may prescribe. Every such resolution delegating the power to borrow money must specify the total amount upto which money may be borrowed.
Section 293 (1) (d) provides that the Directors of a public company or a private company which is subsidiary of a public company cannot borrow any sum (except temporary loans from its bankers in the ordinary course of business) in excess of the aggregate of the paid-up capital and free reserves of the company, except with the consent of the shareholders in general meeting.
Any borrowings in excess of the aforesaid limits shall be ultra-vires the Directors and not
binding on the company unless the company in general meeting ratifies such borrowings.
Further, it may also be noted that a public company can borrow only after the
receipt of the certificate to commence business.
Directors having the authority to borrow also have the power to pledge or mortgage any of the properties of the company as security for the borrowings unless specifically provided otherwise in the Articles.
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