Escorts Ltd, the Nandas-controlled two-wheeler and engineering major, will have to pass a special resolution pertaining to sanction of corporate guarantees for obtaining loans up to Rs 550 crore to its subsidiary, Escotel Mobile Communications.
This follows an amendment in the Companies Act, 1956, nearly two years ago. If the special resolution is not carried by three-fourth majority of the members to be present at the extra-ordinary general meeting on June 15, Escorts will face difficulty in providing corporate guarantees to Escotel receiving loans up to Rs 550 crore in 1997.
According to Section 372A of the Companies (Amendment) Act, 1999, the aggregate investments in -- loans to and guarantees on behalf of -- other corporate (including subsidiary companies), shall not exceed 60 per cent of the paid-up capital and free reserves of the company or 100 per cent of the free reserves of the company, whichever is more, unless approval of the members, by way of the special resolution is obtained.
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"Since the guarantees for getting up to Rs 550 crore loans exceeds the prescribed percentage, it is proposed to seek the shareholders' approval," the EGM notice said.
The Rs 550 crore loan consists of long-term loans of Rs 179.70 crore from offshore financial institutions and Rs 272.50 crore from on-shore institutions. The balance Rs 97.80 crore was planned to receive from on-shore institutions on a short-term basis.
The corporate guarantee will be given to the financial institutions including Export Import Bank of the US ( for Rs 35.20 crore), Eksportinans ASA (for Rs 33.6 crore), Chase Manhattan Bank AG (Rs 48 crore), Chase Manhattan Bank (Rs 62.90 crore) and Infrastructure Leasing and Financial Services (Rs 4.70 crore).
Guarantee is also required to be given to ICICI, HDFC and ILFS for a combined loan of Rs 267.80 crore as well as various banks and institutions for loans worth Rs 97.80 crore.