Defeating provision of any other law
Conversion of paid up Equity duly alloted into a Term Loan. Is it unlawful act?
Asked 4 years ago in Business Law from Pune, Maharashtra
what are facts of your case .? generally in term loan agreement there is clause for conversion of loan amount into equity
What are the circumstances which preceded the conversion? What are the provisions in agreement?
What are the provisions in agreement
Advocate, New Delhi
ABC is a Registered Charitable Trust & reputed NGO, working for Empowerment of Women. It was approached by a Govt. Agency [XYZ] to set up an Agri processing (mfg.) unit with promise of Venture Capital Assistance by way of Equity investment in the new company to be set up [LMN Ltd. promoted by a senior Trust Official, as an Individual]. Project commenced production in Nov. 03. XYZ had an option to buy back the Eq. shares after 3 years but did not exercise it. In the meanwhile, XYZ 'arm twisted' ABC & lured it to sign a new Agreement to convert the paid up equity into TL at their discretion. LMN Ltd. became NPA in March, 2009 & now is a dormant company. XYZ is chasing the Trust Chairman, a Sr. Citizen & Chairman of ABC to repay the so called VCA, with interest. Promoter of LMN has left long back. Old man has approached me, for guidance
Asked 4 years ago
once ABC/ LMN ltd has signed agreement with XYZ giving XYZ an option convert paid up equity into term loan at its discretion it would be binding on ABC /LMN .
if subsequently new company has becoming NPA chairman is not personally responsible .
if LMN became NPA in 2009 and no legal proceedings were taken to recover the loan claim would be barred by limitation as on date . suit ought to have been filed within period of 3 years to recover loan