A company passed a special resolution in its general meeting for grant of loan to another body corporate in excess of limits specified in section 186(2). However, one of the directors contended that prior approval of the

Section 186(5) of Companies Act, 2013 provides that no investment shall be made or loan or guarantee or security given by the company unless the resolution sanctioning it is passed at a meeting of the Board with the consent of all the directors present at the meeting and the prior approval of the public financial institution concerned where any term loan is subsisting, is obtained. However, the prior approval of Public Financial Institution (FI) shall not be required where the aggregate of loans and investments so far made, the amounts for which guarantee or security so far provided to or in all other bodies corporate, along with the investments, loans, guarantee or security proposed to be made or given does not exceed the limit of 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account, whichever is more 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 public financial institution. In the given case the Company is passing the special resolution under Section 186(2) of Companies Act, 2013, indicating thereby that the proposed loan together with the loans already given is already in excess of the limits given under Section 186 (2) of Companies Act, 2013. Hence the contention of the director is correct as the company aggregate of loans and investments so far made, exceed the limit under Section 186(2) of Companies Act, 2013. However, if the aggregate loans/ investments are well within the limits approval and the company is passing the Special Resolution either in terms of its Article of Association or voluntarily only due to some other commercial requirement other than Section 186(2) of Companies Act, 2013, then the prior approval from Financial Institution will not be required.