unsecured loan from director

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 May 2011 can pub ltd. co. take unsecured loan from members or directors???? what willbe difference if pvt. ltd. take unsecured loan frm members or directors???

What is status in which when loan taken from members or directors company status is pvt. ltd. then after converted into pub .ltd.????
& deposit rules 1975 says
(ix)
any amount received by a private company from a person who, at the time of the receipt of the amount, was a director, relative of director or member: Provided that the director or member, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others;
In above 2 situation how co. law affects what is remedy if there are non compliance????

Jayashree S Iyer

Jayashree S Iyer (Expert)
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13 May 2011 Unsecured loan from directors is exempt from the term "deposit" as per Companies (Acceptance of Deposits) Rules 1975 in case of both private and public limited companies.

However unsecured loan from members or relatives of directors will fall under expemption of the term "deposit" only in case of a private company. In case of a public company loan from members or relatives of directors will amount to "deposit" attracting Section 58A of the Companies Act, 1956.

Clause (xi) quoted in your query is amended as Under:

Companies (Acceptance Of Deposits) Amendment Rules, 2004

1 Companies (Acceptance of Deposits) Amendment Rules, 2004

Companies (Acceptance Of Deposits) Amendment Rules, 2004
In exercise of the powers conferred by Section 58A read with sub-clauses (a) and (b) of Sub-section (1) of Section 642 of the Companies Act, 1956 (1 of 1956), the Central Government, in consultation with the Reserve Bank of India, hereby makes the following rules further to amend the Companies (Acceptance of Deposits) Rules, 1975, namely:-

1 . Companies (Acceptance of Deposits) Amendment Rules, 2004.-

1.Short Title and Commencement - (1) These rules may be called the Companies (Acceptance of Deposits) Amendment Rules, 2004.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In rule 2 of the Companies (Acceptance of Deposits) Rules, 1975, in clause (b), for sub-clause (ix), the following sub-clause shall be substituted, namely:-

" (ix) any amount received from a person who, at the time of the receipt of the amount, was a director of the company or any amount received from a relative of a director or its member by a private company :

Provided that the director, relative of a director or member, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others".

Sd/-

(Jitesh Khosla)

Jt. Secy.

Note: - The Companies (Acceptance of Deposits) Rules, 1975 published vide Notification No. G.S.R. 43(E) dated 3-2-1975, Part II, Section 3, Sub-section (i) of the Gazette of India (Extraordinary) dated 3-2-1975, subsequently amended by Notification No.-

1. S.O. 525(E) dated 18-9-1975 21. G.S.R. 44(E) dated 12-1-1982

2. S.O. 684(E) dated 29-11-1975 22. G.S.R. 286(E) dated 19-3-1985

3. G.S.R. 427(E) dated 29-6-1976 23. G.S.R. 372(E) dated 19-4-1985

4. G.S.R. 820(E) dated 24-9-1976 24. G.S.R. 482(E) dated 5-6-1985

5. G.S.R. 965(E) dated 29-12-1976 25. G.S.R. 7(E) dated 2-1-1986

6. G.S.R. 385(E) dated 17-6-1977 26. G.S.R. 385(E) dated 1-4-1987

7. G.S.R. 386(E) dated 17-6-1977 27. G.S.R. 620(E) dated 1-7-1987

8. G.S.R. 424(E) dated 27-6-1977 28. G.S.R. 850(E) dated 12-10-1987

9. G.S.R. 793(E) dated 30-12-1977 29. G.S.R. 551(E) dated 7-6-1990

10. G.S.R. 200(E) dated 30-3-1978 30. G.S.R. 39(E) dated 10-1-1992

11. G.S.R. 252(E) dated 27-4-1978 31. G.S.R. 814(E) dated 19-10-1992

12. G.S.R. 341(E) dated 29-6-1978 32. G.S.R. 744(E) dated 10-12-1993

13. G.S.R. 378(E) dated 17-7-1978 33. G.S.R. 767(E) dated 1-12-1995

14. G.S.R. 586(E) dated 21-12-1978 34. G.S.R. 385(E) dated 24-5-2001

15. G.S.R. 109(E) dated 21-3-1980 35. G.S.R. 689(E) dated 25-9-2001

16. G.S.R. 185(E) dated 1-4-1980 36. G.S.R. 873(E) dated 28-11-2001

17. G.S.R. 380(E) dated 24-6-1980 37. G.S.R. 77(E) dated 4-2-2002

18. G.S.R. 435(E) dated 18-7-1980 38. G.S.R. 300(E) dated 3-4-2002

19. G.S.R. 546(E) dated 24-9-1980 39. G.S.R. 323(E) dated 9-4-2003

20. G.S.R. 187(E) dated 20-3-1981 40. G.S.R. 774(E) dated 29-9-2003