There is a proposal with the Board of directors of Sun Ltd. to give loan of ₹ 250 Lakhs to M/s Moon Ltd. Following are the extract of the financial statement of M/s Sun Ltd. Board of directors of M/s Sun Limited seeks yo

Decision Making with regard to Inter Corporate Loans and Deposits In pursuant to provisions of Section 186(2) of the Companies Act 2013, no company shall directly or indirectly: give any loan to any person or other body corporate, give any guarantee or provide security in connection with a loan to any other body corporate or person, and acquire by way of subscription, purchase or otherwise, the securities of any other body corporate exceeding 60% of its paid-up share capital plus free reserves plus securities premium account or 100% of its free reserves plus securities premium account, whichever is more. Further, Section 186 (3) of Companies Act, 2013 empowers a Company to give loan, guarantee or provide any security or acquisition beyond the limit but subject to prior approval of members by a special resolution passed in a general meeting. In the given case, Limit pursuant to Section 186 for Sun Ltd. is as below: 60% (Paid up capital + Free Reserves + Securities Premium Account) = 60% of (250 + 150 + 25 + 200) = 60% of ₹ 625 Lakhs = ₹ 375 Lakhs 100% of Free Reserve = 100% of (150 + 25) = ₹ 175 Lakhs Higher of I & II above = ₹ 375 Lakhs As per balance sheet of Sun Ltd., it has already provided loans and Investment and Guarantee for amount of ₹ 50 + ₹ 15 + ₹ 25 + ₹ 40 + ₹ 120 + ₹ 20 = ₹ 270 Lakhs. Hence, the Board of Sun Ltd. cannot give loan of additional loan of ₹ 250 Lakhs which taken with existing loan / investment / guarantee would be ₹ 270 Lakhs plus ₹ 250 Lakhs i.e. ₹ 520 Lakhs. However, Sun Limited can seek prior approval of members by a special resolution passed in a general meeting and give loan to Moon Ltd.