You are CFO of GCL Textiles Limited. The last three years' Balance Sheet of GCL Textiles Limited contains the following financial information and figures: As at 31.03.2021 As at 31.03.2022 As at 31.03.2023 Paid up capita

CS Executive · Company Law and Practice · PYQS · December 2023
You are CFO of GCL Textiles Limited. The last three years' Balance Sheet of GCL Textiles Limited contains the following financial information and figures: As at 31.03.2021 As at 31.03.2022 As at 31.03.2023 Paid up capital 25,00,000 25,00,000 37,50,000 General Reserve 20,00,000 21,25,000 25,00,000 Credit Balance in Profit & Loss account 2,50,000 3,75,000 5,00,000 Debenture Redemption Reserve 7,50,000 10,00,000 12,50,000 Securities Premium 1,00,000 1,00,000 1,00,000 Secured Loans 5,00,000 7,50,000 15,00,000 On going through other records of the Company, the following is also determined : Net profit for the year (as calculated in accordance with the provisions of the Companies Act, 2013) 6,25,000 9,50,000 17,25,000 In the ensuing Board Meeting of GCL Textiles Limited scheduled to be held on 15th October 2023, among other items of agenda, following items are also appearing : (a) To decide about borrowing from Banks/Financial institutions on long-term basis. (b) To decide about contributions to be made to charitable funds. Based on above information, you are required to find out as per the provisions of the Companies Act, 2013, the following: The amount upto which the Board of Directors of GCL Textiles Limited can contribute to Charitable funds during the financial year 2023-24 without seeking the approval of members in general meeting.

Answer & Explanation:

As per section 181 of the Companies Act, 2013, the Board of directors of a Company without obtaining the approval of shareholders in a general meeting, can make contributions to genuine charitable and other funds upto an amount which, in a financial year, does not exceed five per cent of its average net profits during the three financial year's immediately preceding, the financial year. Accordingly, to the above provisions, the Board of Directors of GCL Textiles Limited can make contributions to charitable funds, without obtaining approval of the shareholders in a general meeting, upto an amount calculated as follows: Net Profit for the three years (as calculated in accordance with the provisions of the Companies Act, 2013): Particulars ₹ For the financial year ended 31.03.2021 6,25,000 For the financial year ended 31.03.2022 9,50,000 For the financial year ended 31.03.2023 17,25,000 Total 33,00,000 Average of net profits during three preceding years 11,00,000 Five percent thereof 55,000 Hence, the maximum amount that can be donated by the Board of Directors to charitable funds by GCL Textiles Limited during the financial year 2023-24 will be ₹55,000 without seeking the approval of the shareholders in a general meeting.

Topics: Company Law

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