Borrowing Powers – section 180(1)(c) of Companies Act, 2013

Section 180 of the Companies Act, 2013 corresponds to section 293 of the companies Act, 1956 and the said section has been brought into effect from 12th September 2013.

The earlier section 293 and the new section 180 pertained to powers of the Board of Directors which can be exercised only at a general meeting by way of special resolution to be passed for the purpose. Section 293(1)(d) pertained to borrowing powers of the companies i.e. the amount upto which the companies could borrow was laid down in the special resolution which was approved by the members in the general meeting. Companies are allowed to borrow any sums of monies upto the paid up share capital and free reserves of the company. Any borrowal in excess of the combination of these two limits i.e. paid up share capital and free reserves required approval of the members in the general meeting by way of special resolution. Typically companies passed an omnibus resolution securing approval for Rs.X amount which was way above the paid up share capital and free reserves of the company but sufficient for the purposes of the company. 

Section 293 of the Companies Act, 1956 was applicable only to public companies i.e. private limited companies were exempted from this requirement and therefore they could borrow any sums of money upto any limit without the need of seeking any approval from the members of the company. Now Section 180 is applicable to all companies i.e. public as well as private. So now onwards even private companies have to seek the approval of their members if they are intending to borrow monies in excess of their paid up share capital and free reserves. 

The relevant section 180(1)(c) states as follows:

180. (1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—

(c) 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:

Provided that the acceptance by a banking company, in the ordinary course of its business, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise, shall not be deemed to be a
borrowing of monies by the banking company within the meaning of this clause.

Explanation.—For the purposes of this clause, the expression “temporary loans” means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other
short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature;

(2) Every special resolution passed by the company in general meeting in relation to the exercise of the powers referred to in clause (c) of sub-section (1) shall specify the total amount up to which monies may be borrowed by the Board of Directors.

(5) No debt incurred by the company in excess of the limit imposed by clause (c) of sub-section (1) shall be valid or effectual, unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been exceeded.

So a combined reading of the above section implies that it has become necessary for private companies to obtain approval of their members by way of special resolution passed at the general meeting that the company is allowed to borrow monies in excess of the paid up share capital and free reserves of the company, specifying thereby the maximum amount upto which monies could be borrowed by the company. Since the operative part of section 180(1)(c) does not mention “after the commencement of this Act” it means all working and active private companies will be required to pass the necessary special resolution in this regard. Since the section has been made effective from 12th September 2013, it would be imperative for private companies to get such special resolution passed at the earliest, since sub-section (5) above clearly stipulates that the onus of complying the provisions of this section is upon the private company since the lender can claim that he has acted in good faith. 

48 Comments

Filed under company law

48 responses to “Borrowing Powers – section 180(1)(c) of Companies Act, 2013

  1. Is this section applicable to Working Capital facilities, since it is demand loan

  2. FCA Tanvi Rani

    if the loan is payable within 6 months or on demand – then no
    and vice versa .

  3. sushmita

    if a fresh loan is being availed by a public limited company which falls within an overall limit approved under section 293(1) d of companies act 1956, is it required for a public limited company to call an interim AGM and get the approval passeed under special resolution ?

    • as long as the overall limit (already approved) does not exceed, no need again for a fresh approval.. but on the sec. 293 resolution life, .MCA recently clarified that 293 resolution passed prior to 12/9/13will be valid for 1 year from date of notification of sec 180 of new co’s act 2013.

  4. Rashmi Sharma

    whether the shareholders consent envisaged under Section 180 is a prior consent.. or can it be post facto consent too..

  5. Does a private company need to pass a special resolution if it borrows after Sep 13 but it has a blanket approval by a Board Resolution passed before Sep 13?

    • i don’t know what section are you referring to, but if you are referring to section 180(1)(c), then a private company has to pass a fresh resolution to borrow monies because the earlier comparable section i.e. 293(1)(d) was not applicable to private companies.

  6. SP GUPTA

    when a pvt ltd comapny already exceeded the limit under Section 180(1)(c) before the comemncement of the new Act. Whether post facto approval can be done.

    • General meeting approval should be taken as earlier as possible but not later than 12th September, 2014 because that particular section came into force on 12th September, 2013 and one year time frame was given for compliance with the Act.

  7. thanks for nice guide lines
    my question is we are four directors of closely held family run pvt ltd company can we give tempopary loan to our pvt ltd company from our individual account or we have to pass any resolution

  8. Karan

    pvt ltd company already exceeded the limit under Section 180(1)(c) before the commencement of the new Act. please send me the resolution format in this regard

  9. jpsingh

    dear experts
    what is the validity of section 293 (1) (d) of co act 1956. suppose the company passed the above resolutions in 2012 .

  10. chakravarthy

    Suppose if the Pvt Co passed a resolution to borrow money u/s 293(1)(d) and raised half of the amount borrowed, does it requires the pvt. co pass another resolutions for borrowing the remaining under the previous section, since the there is a lapse of one year of notifying the setion180 ?

  11. Mohit

    sir, I want to take loan more than our paid up capital in the future for my company . can our co. pass the special resolution for taking loan in the future for convenience . i also want the format of special resolution to be passed for a private limited company

  12. Kirti

    Sir,
    What does borrowing include in Sec 180.
    Does it include unsecured loans?

  13. i also want the format of special resolution to be passed for a private limited company

  14. prashant

    For accepting loan from director does securities premium will be included in calculation of free reserve ?

  15. Mohan

    Dear Experts…Please tell me the definition of Borrowing in this context… Working Capital is a continuous process…how can to be considered payable in six months …. Whether Unsecured Loans are to be reckoned?…Whether charge creation on account of corporate guarantee is to be taken into consideration?……Whether the same provisions applicable to Non Fund based limits also viz. B.Gs / L.Cs… Thanks in advance.

  16. Reblogged this on CA. Kapil Goel and commented:
    Borrowing Power u/s 180(1)(c) of Companies Act, 2013

  17. abhas

    Can one time SR be passed by the shareholders authorising the Board to borrow subject to some monetary limit notwithstanding the amount of loan exceeds Paid up share capital+Free Reserves?

  18. Anilkumar

    Here my doubt is the board have the powers for extending the time limit of already loan taken by the director from the company under erstwhile co act section 293(is there correspond provision for the time extension in new act)

  19. ssrao

    Now, there is a circular in June thereby Private Companies are exempted from taking Share holders’ approval. Only Board Approval in the Board Meeting (prior approval) is necessary. SSRAO, FCA,ACS

  20. khushboo

    if my company borrow capital beyond limit and give security of immovable property that time i create charge on such property . in that situation Section 180 (1) (a) is attracted or not i am confused with that section or both section compliance i have to follow and pass two different special resolution kindly provide feedback.

  21. payal

    Does for sec180(1)(c) n 180(1)(a) ny CA certification is required?

  22. mohan murali

    how to get the special resolution for signing the branch manager for mortgage documents with bank

  23. Priti

    Please if possible, can anybody provide me with a Board resolution for borrowing money exceeding the limits us 180(1)(c) for private company.

  24. please provide me with draft board resolution for borrowing money exceeding the limit us 180(1)(c) of the CA 2013 for private company

  25. Surbhi

    Sir if limit does not exceed then what resolution will be passed?

  26. TAPASYA RAKHECHA

    For calculating the total borrowing made by a Company under sec 180(1(c) , whether total limits sanctioned by the bank is to be considered or only utilization amount to be considered. Further, some amount has been repaid, then wether only out-standing amount is to be considered?

  27. our”s is pvt ltd company and the bankers r saying that they can finance in the ratio of 1;3 acc to RBI guidelines., r there any such guidelines.. they r asking us to increase our paid up capital in that ratio rather then the unsecured loans from directors which we have showed quasi capital

    • not aware if there is any such RBI guidelines on the subject. Must be most probably the bank’s internal guidelines. In case you want help in increasing share capital do let us know. Rgds.

  28. Swati

    is S/R required to pass in each year for which the loan is pending or 1 time Resolution is enough.

  29. juli

    if private company having negative net worth needs to pass special resolution to borrow money from banks?

  30. N.Hariramakrishnan

    Can any body say whether here under this section 180 1 c, the money borrowed which cannot exceed paid up capital and free reserves means drawn loan or committed loan ( Loan agreement signed but not drawn)?

  31. Anand

    What is impact of negative profit and loss account in the provision of borrowing as per section 180 1 (c) of Companies Act 2013

  32. Pinky

    When the Director gives his own money to his company as “Loan from Director” after filing a declaration Pursuant to Rule 2(c) (viii) of the Companies (Acceptance of Deposits) Rules, 2014 , which authority verifies this “Declaration” by the Director ? which Form has to be submitted ? Has this declaration also to be filed at the ROC ? Plz Reply
    Thanks
    Pinky

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