The shareholders of the company

The paid-up share capital and free reserves of XYZ Co. Limited, a public company, is Rs. 100 crores as on 1st April, 1998. The shareholders of the company at their general meeting held on 4th April, 1998, by a resolution authorised the Board of Directors of the company to borrow money “exceeding the paid-up share capital and free reserves of the company, to the extent required by the Board of Directors”. The Board of Directors as a result borrowed money to an extent of Rs. 130 crores, including Rs. 20 crores as short-term loan and Rs. 25 crores as a temporary loan for financing the construction of a building of the company.
Referring to the provisions of the Companies Act, 1956 examine the validity of the
following:
(i) The Board is exercising the powers for borrowing money to an extent of Rs.
130 crores?
(ii) What would be your answer in case the company’s paid-up share capital and free reserves increased to Rs. 150 crores and the Board of Directors borrow money to an extent of Rs. 140 crores which neither include any short-term loan nor temporary loan for financing of the construction of a building of the
company?
Ylns. The problem as asked in the question is based on the provisions of the Companies Act, 1956, as contained in Section 293(1)(d) and the Explanations I and II to that Section. The Section provides that a public company, or a private company which is a subsidiary of a public company shall not, except with the consent of such public company or subsidiary in general meeting, borrow moneys after the commencement of the Companies Act, 1956, where the money to be borrowed together with the moneys already borrowed by the company (apart from temporary loans obtained
The company desires to know from you, whether they can appoint Mr. Sharat, as the “Managing Director”, to comply with Section 269 of the Companies Act, 1956. You are requested to give a reasoned answer, duly supported by analysis of the legal
provisions applicable to the issue in question.
Section 269 of the Companies Act, provides that every company with a paid up capital of more than Rs. 5 crores shall have a “managing director” and approval of Central Government is required to appot a managing director, if the terms and conditions of appointment do not meet the requirements laid down in Schedule XIII of the Act.
It is from the facts recited in the question, that Mr. Sharat, the incumbent for the office of “managing director” is not a person resident in India. However, it is to be seen whether this is a disqualification, in terms of Schedule XIII of the Act.
Part I -: (e) of Schedule XIII, envisages that the appointee shall be eligible
only if he inter-alia, is “resident in India”, )
which includes a person who has been’staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment asa managerial person and who has come to stay in India
(i) for taking up employment in India, or
(ii) for carrying on a business or vocation in India.
From the facts given, it is clear that Mr. Sharat does not fulfil the requirements of the above Explanation in Schedule XIII and therefore is not qualified for appointrrient,
without permission of the Central Government. .