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Query on borrowings from directors of a public company

brownie (0) (70 Points)

04 April 2013

A public company having Rs. 15 lakh paid up share capital which is facing shortage of fund for its day to day affairs, borrowed a sum of Rs. 5 lakhs from one of its directors. Does it violate any provision of the Companies Act, 1956 and rules framed thereunder?

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7 Replies

VIKAS.A (SOMETHING IS BETTER THAN NOTHING) (1095 Points)
Replied 04 April 2013

nothing is violated,

but it has to be disclosed under related party transaction in financial statements

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Sneha (Company Secretary) (1594 Points)
Replied 04 April 2013

Originally posted by : VIKAS.A
	nothing is violated, but it has to be disclosed under related party transaction in financial statements

Totally agree with it.

Kamal Lahoty (Practising Company Secretary) (274 Points)
Replied 04 April 2013

A public Company cannot accept loan from Individuals/Directors. Loan from Individuals/ Directors will be covered under section 58A of the Companies Act and will be governed by Companies (Acceptance of Deposits) Rules, 1975.

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 08 April 2013

Loan from directors is not covered in 'deposits' u/s 58A if the director has given a declaration to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others [Rule 2(b)(ix) of Companies (Acceptance of Deposits) Rules 1975]. However, if the director is also a shareholder of the company, it will be covered u/s 58A and hence all formalities applicable to public deposits will have to be complied with since loan taken by a public company from its shareholders is covered u/s 58A.

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Kamal Lahoty (Practising Company Secretary) (274 Points)
Replied 08 April 2013

Dear P C Agarwal,

The exemption under rule 2 (b) (ix) is available to a private Company; it is not available to public Company.

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P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 09 April 2013

Dear Kamal,

Pl go through Rule 2(b)(ix) which is reproduced below:

[(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;]