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Loan from director

TULIKA AGARWAL (Self employed) (80 Points)

02 June 2014

Can a director give unsecured loan to a company so that company can refund share application money.

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11 Replies

CA Gaurav Mittal (Partner) (1230 Points)
Replied 02 June 2014

Yes, madam A director can give loan to a company, however he has to give a undertaking that the amount he is giving is from his own funds not from borrowed funds.

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TULIKA AGARWAL (Self employed) (80 Points)
Replied 03 June 2014

Hello Gaurav ji,

Thanks for ur prompt reply.

But i have further query. Can a member also give loan to the company?
In Deposit Rules 2014 member is not mentioned with a director like it was mentioned in previous 1975 rules.

akanksha (CA Final Student) (325 Points)
Replied 03 June 2014

@ Gaurav Sir

How will the director proof that the funds given are from its own sources? and where in companies act 2013 it is written that director can give loan from its own sources

Please provide the source.

Thanks

CA Gaurav Mittal (Partner) (1230 Points)
Replied 03 June 2014

Dear Akanksha,

Please refer to the definition of deposits under companies Act 2013,

it has a clause which states

Deposit includes any receipt of money by way of deposit or loan or in any other form, by a Company.

Following amount received shall not be considered Deposits under this Chapter

8) Any amount received from a person who at the time of receipt was a director provided the director furnishes a declaration that the amount given is not out of borrowed funds.

So from above it is clear that Director has to give a undertaking for the same.

Now the question is about how he declare that the money was from his own funds:-

It is not company job to acretain whether the amount received was from director own funds or borrowed funds. for that company ask for a declaration from a Director that loan given is from his own funds.

akanksha (CA Final Student) (325 Points)
Replied 03 June 2014

Thanks for yopur reply Gaurav Sir,

But fro director's safety point of view how will he proof.

Please refer my earlier ask question

/forum/details.asp?mod_id=292701&offset=1#.U4zLSXaGeYQ

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CA Gaurav Mittal (Partner) (1230 Points)
Replied 03 June 2014

Dear Akanksha,

A director would very well know that whether he has borrowed any amount or not from anyone.

He must be preparing his own individual Balance Sheet and that would be very conclusive evidence.

Bank Statements would be other means.

One thing which i think is possible but i am not sure.

Also,

If suppose the Net worth of Director is 10 Cr and he has taken loan of Rs 5 crore from bank than he can advance a loan of 5 Cr to company.

akanksha (CA Final Student) (325 Points)
Replied 03 June 2014

please see y question sir and answer there

CA Gaurav Mittal (Partner) (1230 Points)
Replied 03 June 2014

I dont have a answer at present, i ll study or have views from others on the same and then let you know.

please drop in your email id

Naveen Kumar (Student CS) (24 Points)
Replied 24 June 2014

sir can anyone provide me the format of declaration by Director for giving loan to Company please.

Geetha Gupta (Accountant) (325 Points)
Replied 14 September 2015

Hi,

I too would like to know the format for the declaration reqd when taking loans from directors.

Also, will this declaration be reqd if the loan existed before CA 2013 came into effect?

Regards

Geetha

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sapna jain (company secretary) (24 Points)
Replied 29 April 2019

A private company took loan from 3 directors in excess of paid up capital and free reserves in may 2013, what procedure needed to be followed and what is the impact of companies act, 2013 on this?