deposit

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Querist : Anonymous

Querist : Anonymous (Querist)

20 December 2010 what procedure a comapny (Public Company , not listed) has to follow if it had accepted an Unsecured loan form Directors?

Pl reply urgently. i am very much confused.

Thanks in anticipation...

CA.RAJIV SHUKLA FCA

CA.RAJIV SHUKLA FCA (Expert)
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20 December 2010 Unsecured Loan taken by the company from a Direcotor of the company is not trated as Loan fro reporting purposes in companies Act 1956.It is treated as part of Networth

Querist : Anonymous

Querist : Anonymous (Querist)

20 December 2010 yes sir u r right but what i think and whaterver i have read is that unsecured loan from Directors of a private company is exempt.
But i m asking for public co.

Can u provide me the source from where i can check the whole detail procedure for the same .

thank u very much sir.

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Jayashree S Iyer

Jayashree S Iyer (Expert)
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20 December 2010 Following amendment are made in 2004 in Public Deposit Rules 1975

"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".

Hence loan from a director of a public company also fall outside the scope of deposit.

CA.RAJIV SHUKLA FCA

CA.RAJIV SHUKLA FCA (Expert)
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20 December 2010 Dear Annoynous Ji,

Take my asnwer as Final Answer should not be get confused.

Unsecured Loan from a director of a Private or Public company not with in the perview of deposit.

Querist : Anonymous

Querist : Anonymous (Querist)

21 December 2010 ok Sir thank you very much for your kind response.

So, may I assume that I will not have to follow any kind porocedure and also no need to maintain register of deposit since as per you opinion its not attract the provision of Deposits?

Regards,

Nikita

Ankur Garg

Ankur Garg (Expert)
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21 December 2010 Yes no need to follow deposit procedure for loan taken from director of a public company and no need to maintain deposit register.

Also go through this brief write up for more clarity:

INTER CORPORATE LOANS

Kindly appreciate, A public and private limited company can take loan from other company and body corporate and the same would be covered under section 372A as an inter corporate loan. The above is exempt from the deposit rules, 1975.

A public and private company can also take loan from Banks/PFIs under the same section 372A as an inter corporate loan.

But if such company take loan from an individual the same would be considered as public deposit under section 58A read with Companies (Acceptance of Public Deposit) Rules, 1975.

As per the definition of deposit given in Rule 2 of the said rules “deposit means any deposit of money with and include any amount borrowed by, a Company but does not include certain amounts.

There are certain amounts which are not considered as deposit as per the rules above and such amount includes inter corporate transaction hence amount taken by company/bank and PFI from other corporate are not considered as deposit.

On the other hand amount taken by public company from individual is not covered in the exemption given by the said rule, hence amount taken by public company from individual is considered as deposit under section 58A read with Companies (Acceptance of Public Deposit) Rules, 1975.

LOAN FROM INDIVIDUALS/OUTSIDERS

Kindly appreciate, A private limited company can take unsecured loan from its shareholders, directors and their relatives and the same would not be covered under section 58A and other deposit provisions as such transaction is exempt by deposit rules 1975.

But if a private company takes unsecured loans from persons other than its shareholders, directors and their relatives the same would be considered as deposit under section 58A read with Companies (Acceptance of Public Deposit) Rules, 1975 and would be considered as a serious violation of section 3(1)(iii).

In case of this default consequences under section 43 shall apply.

Regards