I. INTRODUCTION
For running a new business effectively and successfully and adequate amount of capital is required.[1] In some of the case is the capital is arranged through internal sources that is by the way of issuing equity share capital are true accumulated profit.[2] Whereas in some cases external resources are also used this can be external commercial, borrowing, debentures, public fixed deposits, bank loans etc.[3] Borrowing can be defined as under which money is arrange with an external sources.[4]
II. POWER OF A COMPANY TO BORROW
Under the power of a company exercise by its directors who cannot borrow more than the sum authorised. Under these two company directors can only be exercised for borrowing money by issuing debentures. Under section 179 (3) (c)[5] and (d)[6], directors[7] have the power to pass a resolution to borrow money.[8] However, the power to borrow money can only be delegated by passing resolution. Under the resolution the total amount of money which can be bothered must be written.[9] Under section 180[10], the board of directors of the company are restricted from borrowing a sum of money which is obtained from temporary loans that are obtained from the company’s banker.[11] According to Section 180, temporary loans are the loans which are re-payable on the demand within 6 months from the date.
III. UNAUTHORISED BORROWINGS
When a company borrow something without the authority or beyond the amount set out in the articles it is an unauthorised borrowing. These borrowings are void. When these borrowings take place then the contract is automatically void and the lender cannot sue the company.[12] The securities which are given for these unauthorised borrowing are void and inoperative.
IV. INTRA VIRES BORROWING BUT OUTSIDE THE SCOPE OF AGENTS AUTHORITY
There is an always a distinction between a company’s borrowing powers and authority of the directors to borrow. The following which is done beyond the authority of the director is not ultra vires where as such borrow is known as ultra vires.[13] If the borrowing is done within the directors then the company will be liable of such borrowing.[14]
V. TYPES OF BORROWING
There are various types of borrowing which can be categorised as
- Long term borrowings
Under the long term the funds are borrowed from a period ranging from 5 years or more.[15]
- Short term borrowings
Under the short-term borrowed for a very short period that is up to 1 year.[16] These funds are generally borrowed so that working capital amount can be made.[17]
- Medium term borrowings
These are the borrowing under which the funds world from a period of 2 to 5 years.[18]
- Secured borrowing
Under the secured borrowing, if a creditor has the re-course of assets of the company or a proprietary then a debt obligation is considered as security.[19]
- Unsecured borrowing
Under the unsecured borrowing the debt comprises of financial obligations.[20]
- Syndicated borrowing
Under the syndicated borrowing, if a borrower requires a large fund, it is generally provided by a group of lenders.[21] Under this one agreement is used by borrower covering the whole group of bank and different types of facilities rather than entering into series of separate loans.[22]
- Bilateral borrowing
When a company makes a borrowing from a particular meaning of financial institution it is known as bilateral Borrowing. There is only single type of contract between the company and the borrower in this type of borrowing.
- Private borrowing
The private borrowing consists of bank loan obligations. Under this the company take loan from Bank of financial institution.[23]
- Public borrowing
Public borrowing consists of all the financial institutions that are freely tradable on a public exchange.
References
[1] CS Rahul Harsh, Reduction of Share Capital under Companies Act, 2013 – A Complete Analysis of Section & Rules (2017), http://taxguru.in/company-law/reduction-share-capital-companies-act-2013-complete-analysis-section-rules.html.
[2] Id.
[3] Mr. M. Govindarajan , Procedure For Reduction Of Share Capital Under Companies Act, 2013 (2017), https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=7191&kw=PROCEDURE-FOR-REDUCTION-OF-SHARE-CAPITAL-UNDER-COMPANIES-ACT-2013 (last visited Apr 8, 2017).
[4] Borrowing Powers – section 180(1)(c) of Companies Act, 2013, (2014), https://vramonline.wordpress.com/2014/01/10/borrowing-powers-section-1801c-of-companies-act-2013/comment-page-1/ (last visited Apr 8, 2017).
[5] To issue securities, including debentures, whether in or outside India.
[6] to borrow monies.
[7] CA Nitesh, Resolutions required to be Filed Under Companies Act,2013 in form MGT 14 (2014), http://taxguru.in/company-law/resolutions-required-filed-companies-act2013-form-mgt-14.html (last visited Apr 8, 2017).
[8] Borrowings under New Companies Act, 2013, http://www.caclubindia.com/forum/borrowings-under-new-companies-act-2013-274737.asp.
[9] Supra note 5.
[10] The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—
- to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
- to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation;
- to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business. (………………….)
[11] Admin, Section 180 of CA 2013 not applicable to Private Limited Companies (2015), http://taxguru.in/company-law/section-180-ca-2013-applicable-private-limited-companies.html (last visited Apr 8, 2017).
[12] Supra note 5.
[13] Borrowing Powers of a Company | Loans | Section 180(1)(c) |, , https://finapp.co.in/company-borrowings-loans/ (last visited Apr 8, 2017).
[14] Supra note 10.
[15] India is borrowing more and more to pay its existing loans, and that could wreck development dreams, , https://scroll.in/article/818686/india-is-borrowing-more-and-more-to-pay-its-existing-loans-and-that-could-wreck-development-dreams (last visited Apr 8, 2017).
[16] Id.
[17] Diksha Ramesh, 5 short-term debt funds that could give good returns, http://www.businesstoday.in/current/economy-politics/5-short-term-debt-funds-that-could-give-good-returns/story/246369.html.
[18] Id.
[19] Id.
[20] Unsecured Loan, http://www.investopedia.com/terms/u/unsecuredloan.asp (last visited Apr 8, 2017).
[21] External Commercial Borrowings (ECB), , http://www.banknetindia.com/banking/ecb.htm (last visited Apr 8, 2017).
[22] A Comprehensive Guide to Loan Syndication in India, , https://blog.bajajfinserv.in/a-comprehensive-guide-to-loan-syndication-in-india/ (last visited Apr 8, 2017).
[23] Mr. M. Govindarajan , Procedure For Reduction Of Share Capital Under Companies Act, 2013 (2017), https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=7191&kw=PROCEDURE-FOR-REDUCTION-OF-SHARE-CAPITAL-UNDER-COMPANIES-ACT-2013 (last visited Apr 8, 2017).
