Issue of shares to directors against the advances given

This query is : Resolved

sandip sharad dadkar (Querist)
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02 March 2018 In family owned pvt ltd company, Around 2 years back directors (family members) have incurred significant expenses on behalf of the company. Company doesn't have enough bank balance to repay the amount. The amount is appearing as advances from directors and no resolution was passed to treat them as loan. Now company desires to issue shares against these amounts, is it doable u/s 62 of companies act? what is recourse.

Jatin Bajaj

Jatin Bajaj (Expert)
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03 March 2018 If the Loan is taken as per the provisions of the Companies Act 1956 and no special resolution was passed at that time , then as per the provisions of Section 62 of the Companies Act, Company cant convert loan into equity.
But even if Company has taken loan as per the provisions of the Companies Act 2013 and has not passed special resolution then also company cant covert loan into equity.
Crux: Loan taken either under the Companies Act 1956 or as per Companies Act 2013, it is mandatory that special resolution was passed at time of receipt of loan and it shall be mentioned that such Loan shall be converted into equity.