The provision that the Court is to take into account the company’s contingent and prospective liabilities is important

A company which has to date paid all its debts as they fall due may still be ordered to be wound up if consideration of its assets and liabilities shows that it will or may shortly be unable to do so.

However, please note that the effect of consolidating the provisions with respect to inter-company loans and investments is that if a company proposing to make any

loan, etc., to any other body” corporate’has, or is proposing, to make any investment in. any other body corporate, then it is the aggregate of the loans, guarantees, etc., ‘and investments which cannot exceed the aforesaid ceiling.

2. Approval by way of Special Resolution. Where the aggregate of the loans/investments, etc., so far made and the amount for which guarantee or security so far provided to all other bodies corporate, alongwith investments/loan, guarantee o.r security proposed to be made or given exceeds the aforesaid limits, no loan shall be made or guarantee given or security provided unless previously authorised by a special resolution passed in a general meeting.

3. Matters to be Specified in the Notice of Special Resolution. Second proviso to sub-section (1) of Section 372-A requires that the notice of the special resolution as aforesaid, must indicate clearly:

(i) the specific limits;

(ii) the particulars of the body corporate in which loan or security or guarantee is

proposed to be given; ( iii) the purpose of the loan, security or guarantee;

(iv) specific sources of funding and such other details.

4. Rate of Interest. No loan to any body corporate shall be made at the rate of interest lower than the prevailing ‘bank rate” of interest.

5. Unanimous Approval of the Board. Sub-section (2) of Section 372-A disallows making of inter-corporate loans, guarantee, etc., investment by the Board of Directors of a company unless the resolution sanctioning it is passed at a meeting of the Board with the consent of all the Directors present at the meeting.

6. Approval of the Public Financial Institution. Where any term loan is subsisting, the prior approval of the public financial institution (referred to in Section 4A) must be obtained. However, the prior approval of a public financial institution shall not be required where the aggregate of the loans, guarantees, etc., and investments so far made in all other bodies corporate alongwith the investments, loans, etf:., proposed to be made does not exceed the aforesaid limit of 60 per cent. But, the approval of the public financial institution shall be necessary where the company has made a default in repayment of loan instalment or payment of interest thereon as per the terms and conditions of such loan to the public financial institution.

7. Default in Repayment of Deposits. Sub-section (4) of Section 372-A prohibits a company which has defaulted in complying with the provisions of Section 58A to, directly or indirectly; (a) make any loan to any body corporate; (b) give any guarantee, or provide security, in connection with a loan made by any other person to, or to any other person by, any body corporate; till such default is subsisting.

8. Register of Loans [Section 372-A(S)]. Every company shall keep a register showing the following particulars with respect to every loan made, guarantee given or security provided by it in relati{}n to any body corporate(s):

(i) the name of the body corporate;

(ii) the amount, terms and purpose of the loan or security or guarantee;

(iii) the date on which the loan was made; and

(iv) the date on which the guarantee was given or security was provided in

connection with a loan.