The company’s investment in the shares of other bodies corporate and the loans made

The company’s investment in the shares of other bodies corporate and the loans made

to other bodies corporate exceed 60 per cent of its paid-up share capital and free reserves and also 100 per cent of its free reserves. The company has obtained a term loan from the Industrial Credit and Investment Corporation of India Limited. The company proposes to increase its investment in the equity shares of ACE Forgings Limited from 60 per cent to 70 per cent of the equity share capital of ACE Forgings Limited by purchase of shares from the Forging Collaborator.

State the legal requirements to be complied with by ACE Automobiles Limited under the Companies Act to give effect to the above proposal. Will your answer be different if the company has defaulted in repayment of matured deposits accepted from

the public. [CA. (Final) November, 1999]

.9Lns. ACE Engineering Ltd. is not a whoily owned subsidiary of ACE Automobiles Ltd. and hence investment in such a subsidiary company is not covered by exemption under Section 372-A(8)(e) of the Companies Act, 1956. As the aggregate of the loans and investments so far made by ACE Automobiles Ltd. exceeds 60% of the paid-up share capital and free reserves it is necessary for the company to follow the following procedure:

(i) Pass a resolution of the Board of directors at a meeting of the Board approved by all the directors present at the meeting [Section 372A(2)]. The notice of special resolution must indicate clearly the specific limits, the particulars of the body corporate in which the investment is proposed to be made, the purpose of the investment, specific sources of funding and such other details [Proviso 3 to Section 372-A(1»).

(ii) Pass a special resolution in. the General Body Meeting [Proviso to Section 372-A(1»).

(iii) Obtain prior approval of ICICI Ltd. since ACE Automobiles Ltd. has obtained the term loan from lCICI Ltd. which is a public financial institution as per Section 4A of the Companies Act and, therefore, the provisions of the Proviso to Section 372-A(2) are also attracted.

(iv) Enter the prescribed particulars of the investment in a register within seven days of making the investment [Section 372-A(5»).

(v) Comply with the guidelines, if any, prescribed by the Central Government under Section 372-A(7).