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Loan from Directors and Members

shehzad (accounts executive) (140 Points)

06 May 2009

Hello friends,

Can anybody tell me

whether a unlisted public limited co. can accept unsecured loans from its directors and members ?

Plz tell me the section also.

I know that sec. 58 A is applicable as well as the Companies (Acceptance of Deposits) Rules, 1975 is applicable, but i m not clear what sub clause ix of rule 2 says.

Is it exempting directors, relatives or members of private co. only or of any co.

Plz reply as fast as u can.

Thanks

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12 Replies

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 07 May 2009

Dear Friend,

Kindly appreciate Rule 2 Clause IX exempts only a Private Company from accepting Deposits from its Director etc...

As per my interpretation in your case Section-58A & Rules are applicable.

Regards

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shehzad (accounts executive) (140 Points)
Replied 08 May 2009

Respected Sir,

First of all thanks for your reply but i have some few more doubts.

1) I asked for unsecured loans, so whether public deposits and unsecured loans are on and same things, i.e. both are covered under sec. 58A only ?

2) What about in case of private ltd. co. which is subsidiary of public co. ? Is this section applicable ?

3) Rule 2 Clause IX of the Companies (Acceptance of Deposits) Rules, 1975 was lastly amended in 2004, as follows :

" (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".

Before 2004, it was amended in 2001 & it was as follows:

“(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;”.

My question is if it gives exemption to private ltd. co. only than what was the need to amend the rule again in 2004.

Please clarify my doubts.

Thanks & Regards

CS Ekta (Company Secretary) (309 Points)
Replied 23 May 2009

Hi Shehzad,

As per the latest amendment in 2004, a public company can accept unsecured loans form its Directors.

Please see the link given below which will clear your doubts.

https://www.thehindubusinessline.com/bline/2004/03/19/stories/2004031900620400.htm

Further, I think that private company which is a subsidiary of public company will get the complete exemption as the rules do not say anything on subsidiaries

shehzad (accounts executive) (140 Points)
Replied 23 May 2009

Hi Ekta,

thanks for ur reply.

Regarding public co., it is correct that loan can be taken from directors.

But as us said that, there is no mention about deemed public co. I would like to remind u that the definition of public co. incorporates private co. which is subsidiary of public co. So, in my opinion wherever it is mentioned public co., it should include private co. subsidiary of public co.

plz reply.

CS Ekta (Company Secretary) (309 Points)
Replied 25 May 2009

This is my opinion. I may not be 100% correct

As per section 3 (1) (iii), a private company cannot accepts deposits from persons other than its members, directors or their relatives.

The basic characteristics of a private company in terms of section 3(1)(iii) of the Act do not get altered just because it is a subsidiary of a public company in view of the fiction in terms of section 3(1)(iv)(c) of the Act that it is a public company. May be it is a public company in relation to other provisions of the Act but not with reference to its basic characteristics.

And as per Rule 2 Clause IX of the Companies (Acceptance of Deposits) 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 will not qualify as deposit

I think both the deposit rules and section 3(1) (iii) goes hand in hand and subsidiary will enjoy the status of a private company to claim the exemption.

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shehzad (accounts executive) (140 Points)
Replied 25 May 2009

Hi Ekta,

U might be correct but can u substantiate ur explanation with some case laws or some circular making it clear that a Pvt. co. which is subsidiary of public co. is not to be construed as public co.

Thanks & Regards,

CS Ekta (Company Secretary) (309 Points)
Replied 25 May 2009

Hi Shehzad ,

Presently, I dont have any thing to substantialte my explaination . Lets hope others might help us

shehzad (accounts executive) (140 Points)
Replied 25 May 2009

Hi Ekta,

I will search on ur opinion & u also try for it whenever u get time.

Thanks

navaaz (na) (36 Points)
Replied 09 December 2009

can a private company accept a secured loan from its directors?

please state relevant sections..thanks

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 09 December 2009

Yes a private company can accept secured from its director.

Compliance with section-125 is necessary.

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shishir (Director) (24 Points)
Replied 09 October 2011

Dear Members ,

I would like to know that how ( Unlisted) Public limited company can accepted an unsecured deposit / loan from an individual ( Other than Director or Share holder). And make the interest payment.

What shall be the remedy & resonable option to do such transaction.

CA.Vivek Chevli (Chartered Accountant) (59 Points)
Replied 23 August 2012

Dear Members ,

I would like to know that how ( Unlisted) Public limited company can accepted an unsecured loan from an individual ( Other than Director or Share holder). And make the interest payment.

What shall be the remedy & resonable option to do such transaction.