General Studies · Company Loans and Corporate Documentation
Techno-Solutions Pvt Ltd approaches the bank for an enhancement of its working capital. The company's board consists of three directors. The Managing Director (MD) provided a personal guarantee for the existing limit but refuses to extend it for the enhanced limit. The bank's credit policy mandates a personal guarantee from promoter-directors. What is a valid legal precaution regarding document execution and board authorization in such corporate loans?
- 1The bank can insist on a Letter of Comfort from the MD and must ensure the documents are signed as per the company's Articles of Association, often requiring a common seal if mandated.✓
- 2The bank can waive the guarantee if the Asset Coverage Ratio is above 2:1, as per RBI's Non-Mandatory guarantee guidelines.
- 3The bank must accept the board's decision as corporate liability is independent of the directors' personal assets.
- 4The bank can proceed without the guarantee but must increase the interest rate by 2% to compensate for the higher credit risk.
Correct answer
The bank can insist on a Letter of Comfort from the MD and must ensure the documents are signed as per the company's Articles of Association, often requiring a common seal if mandated.
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