Board of A Ltd exercised the power to sell its whole undertaking in Ab Ltd its subsidiary A Ltd rsqu...........

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

Board of A Ltd exercised the power to sell its whole undertaking in Ab Ltd its subsidiary. A Ltd’s total income for the previous financial year was 100 crores. The income share contributed by Ab Ltd was 30 Crores only. The exercise of such power was through 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 Ab Ltd’s share in total income exceeds 20 %.

No, as the Company shall be required to provide consent by Special Resolution as Ab Ltd’s share in total income exceeds 15 %

Yes, as the Company shall be required to provide consent by Ordinary Resolution as Ab Ltd’s share in total income is less than 40 %

Yes, as the Company shall be required to provide consent by Ordinary Resolution in all cases

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Explanation:

Ab Ltd is an “undertaking” as the Income therefrom(i.e. 30 crores) exceeds the 20% of Co’s total income (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;