For provisions of Section 372A relating to inter-company loans and investments

In the given question, the total paid-up share capital of the company is equal to Rs. 9,90,000 (Equity) + Rs. 1,50,000 (Preference) = Rs. 11,40,000. The total amount of free reserves available for distribution of dividends works out to Rs. 9,30,000 (comprising of General Reserves, Balance in Profit and Loss Account, Dividend Equalisation Reserves; and the balance in Securities Premium Account). The aggregate of Paid Up Share Capital and Free Reserves amounts to Rs. 20,70,000. 60 per cent of this amount works out to Ri;. 12,42,000 which is higher than the 100 per cent of Free Reserves, namely, Rs. 9,30,000. Accordingly, the company can invest by way of loans and investments in other body corporates upto Rs. 12,42,000 by passing a unanimous resolution at a meeting of Board of Directors. In the present case, the investments already made in other body corporates amount to Rs. 5 lakhs which include equity shares in A Ltd. of Rs. 1,25,000. A Ltd. being wholly owned subsidiary of XYZ Ltd. is exempted from the provisions of Section 372A. Accordingly, total investments in other body corporates already made amount to Rs. 3,75,000. The proposed investments include a loan of Rs. 10,00,000 to A Ltd. which being the wholly owned subsidiary to XYZ Ltd. shall be exempted; debentures in B Ltd. of Rs. 2,25,000 and shares of Shree Ltd. Rs. 95,000/ - which amount to Rs. 3,20,000 [Rs. 2,25,000 + Rs. 95,000). Thus, the aggregate ofloans and investments already made and proposed to be made works out to Rs. 6,95,000/- [Rs. 3,75,000 + Rs. 3,20,000] which is very much within the permissible ceiling of 60 per cent of Paid up share capital and Free reserves. Accordingly, the Board of Directors shall be within their powers to make the proposed additional investments by passing a unanimous resolution in a meeting of the Board.