You are a company secretary of Bunny Ltd. a listed company and Bunny Ltd. has proposed in November, 2023 to make an investment of ₹80 lakhs in the equity shares of Hunny Investment (Pvt.) Ltd. the face value of which is

CS Executive · Company Law and Practice · PYQS · June 2024
You are a company secretary of Bunny Ltd. a listed company and Bunny Ltd. has proposed in November, 2023 to make an investment of ₹80 lakhs in the equity shares of Hunny Investment (Pvt.) Ltd. the face value of which is ₹40 lakh. The financial data related to Bunny Ltd. and Hunny Investment (Pvt.) Ltd. as on 31st March, 2023 is furnished below: Particulars Bunny Ltd. (Rs. in Lakh) Hunny Investment Pvt. Ltd. (Rs. in Lakh) I. Authorized Capital 800 400 II. Subscribed and paid-up capital (a) Equity shares 240 300 (b) Preference shares 20 — III. Capital Reserves 20 30 IV. Free Reserves 20 — V. Borrowings from Public Financial Institution 40 — Bunny Ltd. (the company) furnished the following information related to it as on the date of proposed acquisition: (1) No other body corporate has invested any money in its share capital. (2) The company has granted guarantee to the tune of ₹100 lakh to a nationalized bank in connection with the loan granted to Richa Ltd. (3) It has granted housing loan of ₹20 lakh to its employees, other than its managing director or whole-time director. Hunny Investment (Pvt.) Ltd. furnished the following other information related to it: (1) The total assets as on 31st March, 2023 were ₹330 lakh including investment in shares & debentures of body corporate ₹200 lakh. (2) The income derived from investment in shares and debentures was ₹30 Lakh out of the gross income of ₹100 Lakh. Of the total shareholders of the company there are 20,000 shareholders who are holding shares of nominal value of not more than ₹20,000 each. A total number of 1500 such small shareholders have proposed Mr. X as their candidate to be the small shareholders' director. Based on the above information and referring to the provisions of the Companies Act, 2013 and relevant notifications/circulars issued by the Ministry of Corporate Affairs (MCA) answer the following: Whether approval of the Public Financial Institution would be required for the investment proposal?

Answer & Explanation:

In terms of Section 186(5) of the Companies Act, 2013 , prior approval of the Public Financial Institution (PFI) shall not be required where: the aggregate of the loan and investment so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate along with the investment, loan guarantee or security proposed to be made or given by the Board, does not exceeding sixty per cent. of its paid-up share capital, free reserves and securities premium account or one hundred per cent. of its free reserves and securities premium account, whichever is more under Section 186(2) of the Act; and there is no default in repayment of loan installments or payment of interest thereon as per the terms and conditions of such loan to the PFI. However, in this case, for the Bunny Limited, the aggregate of the amount for which guarantee or security so far provided, along with the investments, proposed to be made is ₹180 Lakh (i.e. ₹100 Lakh existing guarantee + proposed investment of ₹80 Lakh) which has exceeded the limit of ₹168 Lakh (i.e.the limits specified under Section 186(2) of the Act). Since the proposed investment will exceed the limits specified under section 186(2) of the Act, prior approval of the Public Financial Institution will be required.

Topics: Investments and Loans by Companies

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