Board of A Ltd wishes to exercise the power to sell its whole undertaking in Ab Ltd its subsidiary n...........

Companies Act-Phase (I & II) Board-powersandMeetings

Board of A Ltd wishes to exercise the power to sell its whole undertaking in Ab Ltd its subsidiary. Ltd’s total net worth as per the preceding financial year audited Balance Sheet was 100 crores. The Investment in Ab Ltd was 30 Crores only. The exercise of such power was done after consent of the Company through ordinary resolution. Is the treatment correct?

No, as the Company shall be required to provide consent by Special Resolution as the total investment exceeds 20 % net worth

No, as the Company shall be required to provide consent by Special Resolution as the total investment exceeds 15 % net worth

Yes, as the Company shall be required to provide consent by Ordinary Resolution as the total investment is less than 40 % net worth

Yes, as the Company shall be required to provide consent by Ordinary Resolution irrespective of %age of investment

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Explanation:

Ab Ltd is an “undertaking” as the Investment therein(i.e. 30 crores) exceeds the 20% of Co’s Net worth (20%*100 crores).

So u/s 180(1)(a) GM-SR is required .

180. Restrictions on powers of Board
(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:—
(a) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
Explanation.—For the purposes of this clause,—
(i) “undertaking” shall mean an undertaking in which the investment of the company exceeds twenty per cent. of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty per cent. of the total income of the company during the previous financial year;
(ii) the expression “substantially the whole of the undertaking” in any financial year shall mean twenty per cent. or more of the value of the undertaking as per the audited balance sheet of the preceding financial year;