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Unsecured Loan

Pravin (Associate) (127 Points)

06 November 2009

Can Public Ltd. (unlisted) comapny accept loan from its directors and other companies ? is it regarded as deposit us 58A ?

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 06 November 2009

Originally posted by :Pravin
"	Can Public Ltd. (unlisted) comapny accept loan from its directors and other companies ? is it regarded as deposit us 58A ?	"

If your public company accept loan from its director then it would be considered as public deposit.

However accepting loan from a company is considered as inter corporate loan u/s 372A and not covered by deposit provisions.

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 06 November 2009

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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sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 07 November 2009

Thanks Ankur Ji

rakhi (C.A.) (22 Points)
Replied 07 November 2009

Yes, Mr. ankur is right. Hence all the provisions of Comapnies Act, 1956 relating to deposits shall apply to loans taken from individulas and viceversa

Pravin (Associate) (127 Points)
Replied 09 November 2009

Thanks all of you for reply

but i am littile bit confused with the rule 2 (b) (ix) of rules as in some books it is written as " any amount received by company from a peron who at the time of receipt of the amount, was director of the company or the shareholder of private company.". As it talks only about the shareholder of the private company

Pls gide on this and please send me the extract of the same

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

There is no confusion at all.

if any private co. accept loan from its directors or shareholders the same would not be considered as public deposit.

CS Ekta (Company Secretary) (309 Points)
Replied 09 November 2009

Loan from Directors by a Public Co. will not be considered as Public Deposit under sec 58A.

Rule 2 Clause IX of the Companies (Acceptance of Deposits) Rules, 1975 provides that the term deposit does not include:

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".

Please refer this link which will clear any doubt

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

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Mitali Agarwal (Company Secretary) (638 Points)
Replied 06 February 2010

A public ltd. unlisted co. is interested in accepting unsecured loan from a partnership firm.

Now, whether Section 372A will be applicable?

Section 372A is applicable only when a public company makes loan or gives guarantee ? If that co. wants to obtain loan/guarantee, then whether this section is applicable??

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 06 February 2010

Dear Pravin / Ankur Ji,

As per Rule 2 (b) (ix) of Acceptance of Deposit Rules, 1975 " any amount received by company from a person who at the time of receipt of the amount, was director of the company or any amount revceived from a relative of a director or its member by a private company.

Thus, as per above provision, deposit from directors are exempted in all companies whether public or private.

Further, in case of private company Deposit accepted from Director their relative or shareholder are exempted deposit. Further, private company can only except deposit from their Directors, relatives of directors and shareholders as per section 3(1)(iii) of the Companies Act, 1956 .Therefore, if private company accept any deposit it would not be considered as deposit and would be treated as unsecured loan.

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 06 February 2010

Originally posted by : Ankur Srivastava
	Dear Pravin / Ankur Ji, As per Rule 2 (b) (ix) of Acceptance of Deposit Rules, 1975 " any amount received by company from a person who at the time of receipt of the amount, was director of the company or any amount revceived from a relative of a director or its member by a private company. Thus, as per above provision, deposit from directors are exempted in all companies whether public or private. Further, in case of private company Deposit accepted from Director their relative or shareholder are exempted deposit. Further, private company can only except deposit from their Directors, relatives of directors and shareholders as per section 3(1)(iii) of the Companies Act, 1956 .Therefore, if private company accept any deposit it would not be considered as deposit and would be treated as unsecured loan.

Now fully agree with you regarding acceptance of money from director especially after the link provided by Ms. Ekta.

Thanks very much

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 06 February 2010

Originally posted by : Mitali Agarwal
	A public ltd. unlisted co. is interested in accepting unsecured loan from a partnership firm. Now, whether Section 372A will be applicable? Section 372A is applicable only when a public company makes loan or gives guarantee ? If that co. wants to obtain loan/guarantee, then whether this section is applicable??

No section 372A is not covered as P'ship firm is not a Body Corporate or a company. Regarding II query you are requested to analyse section 372A (1)(b) carefully.

Further if co. wants to obtain loan/guarantee then this section is not applicable. But a board resolution u/s 292(1)(c) is required.

Mitali Agarwal (Company Secretary) (638 Points)
Replied 06 February 2010

Thanks a lot Sir.

Actually I was confused by the following explanation :-

Originally posted by : Ankur Garg
	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. Regards