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How to apply section 58A

PRASHANT KUMAR (Operation head) (28 Points)

13 November 2009

I am dealing with a case in which one RBI certified loan lending agency is lending loan to a PVT. LTD. company .

Now lending agency is not corporate (neither pvt. ltd now public ltd.) And borrower is a pvt ltd company.

As lending agency is asking permission to borrow section 58a document

So i want to ask how

1: Can a pvt ltd company borrow a fund from a person who is not director ,not share holder, not corporate ,not any relative of directors?

2: Can be obtained permission to borrow from ROC even lender is not corporate?

3: How to apply for permission to borrow and how much time it will take?

Kindly advise me as soon as possible as i got stuck in this case.

Thanks and Regards

Prashant Kumar

+9-9958765666

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17 Replies

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 14 November 2009

Hi,

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 take 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.

Regards

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Pravin (Associate) (127 Points)
Replied 18 November 2009

Dear Ankur Sir,

It means if public co. accept unsec. loan from directors it will consider as deposit ? Pls clarify .

if you have any extract pls mail me

Thank you

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 18 November 2009

yes it will be considered as public deposit.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 19 November 2009

Dear Pravin,

If a Public Company accept deposit from its director it will not consider as deposit because loan from director is a exempted deposit vide rule 2(ix) of Companies (Acceptance of Deposits Rules), 1975.

It will be treated as unsecured loan.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 19 November 2009

Dear Prashant,

In your case loan will be treated as secured / unsecured loan and provisions of deposit would not apply. Because private company cannot take any deposit except from its director, shareholders and their relatives and under Acceptance of deposit rules all of above taken by a private company is a exempted deposit. Thus, on private company the provisions of deposit would not apply.

It is a borrowing and provisions will apply accordingly.

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 19 November 2009

Originally posted by :Ankur Srivastava
"	Dear Pravin, If a Public Company accept deposit from its director it will not consider as deposit because loan from director is a exempted deposit vide rule 2(ix) of Companies (Acceptance of Deposits Rules), 1975. It will be treated as unsecured loan.	"

Now what to say after such detailed explanation in my first reply….

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 20 November 2009

Dear Ankur ji,

In your first explanation in last para you have written as under:-

"But if a private company take 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."

In my opinion this could not be considered as deposit because private company can not take deposit other than its Directors, Shareholders and their relatives in terms of the provisions of section 3(1)(iii)(d).

Vaibhav Shukla (Company Secretary) (142 Points)
Replied 20 November 2009

Dear Prashant,

I completely agree with the views of mr. ankur srivastava as a private company can not accept deposits from persons other than its Members, Directors or their relatives. further the amt. recieved by a pvt. co. from its Members, Directors or their relatives is not included in Deposits as per the DEposit Rules 1975 provided a declaration in writing is furnished by them at the time of giving the money that the amt. is not being given out of funds acquired by them by borrowing or accepting from others.Thus the amt. recieved by a pvt. co. from persons other than its Members, Directors or their relatives is to be treated as borrowings and not as deposits.

Thanx & Regards

Vaibhav Shukla

Company Secretary.

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 20 November 2009

Originally posted by :Ankur Srivastava
"	Dear Ankur ji, In your first explanation in last para you have written as under:- "But if a private company take 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." In my opinion this could not be considered as deposit because private company can not take deposit other than its Directors, Shareholders and their relatives in terms of the provisions of section 3(1)(iii)(d).	"

Dear learned friend,

As per my understanding my explanation is correct but you are following your own interpretation which is not matching with my interpretation…

Lets solve this and try to find out a final and agreeable conclusion:

As per my explanation:

My interpretation is:

My point is nobody can stop a private company from taking unsecured loans but as per section 3(1)(iii)(d) such unsecured loans would be treated as public deposit by ROC, if accepted from persons other than its Directors, Shareholders and their relatives.

Here intention of private company is not the acceptance of deposit but according to the private company they are simply taking unsecured loan. But implication of this act would result in violation of section 3(1)(iii)(d).

So your opinion that “this could not be considered as deposit because private company can not take deposit other than” needs a minor correction however your understanding is correct.

According to me this will be considered as deposit because private company is not accepting deposit directly but violating section 3(1)(iii)(d) indirectly at the same time by accepting unsecured loan from persons other than its Directors, Shareholders and their relatives.

Regards

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 20 November 2009

Dear Ankur Ji,

We should not take the couse of action which will voilate the provisions of Companies Act, being a Company Secretary this is our major responsibility to protect the provisions of company law. And acceptance of deposit by a private company other than its directors, shareholders and their relatives is clearly prohibitted by the Company Law so any amount of loan, from any person other than above, how can be shown as deposit.

And 3(1)(iii) is the base on which the private company stands.

We cant voilate those provisions, this is the reason why i said that it cannot be considered as deposit.

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CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 20 November 2009

Anyways thanks for such a good discussion.

Mansi (Article) (61 Points)
Replied 26 August 2010

Dear Ankur Sir,

If private company having itz authorized share capital of Rs. 1 Crore and if itz Bank demand the Company for raising more funds (for eg: 1 Crore more) then how can the Pvt Co can raise the fund through deposits (i. .e. deposits taken from individual other than itz directors & members) and what is the procedure that the Pvt Company has to undergo for the same,