♠ Loans are the major source of funding for most of the Companies a part from their Share Capital. Companies borrow from various sources like banks and various other financial institutions. Whereas, Public Limited Companies borrow from mass public by accepting public deposits. Private Companies are strictly prohibited from accepting any loan or deposits from the public.

♠  The Companies Act 2013 which came into force w.e.f 1st April 2014, has restricted the acceptance of deposits by a Private Limited. The Provisions with respect to the same are contained in Section 73 of the Companies Act 2013 and Companies ( Acceptance of Deposits) Rules 2014.The Companies Act 2013 has undergone changes in the past 2 years now the latest position of the provision is as follows:

  • Ministry of Corporate Affairs( MCA) vide notification dated September 15, 2015 has made amendments in the provisions of aforementioned rules which shall now be called The Companies ( Acceptance of Deposits) Second Amendment Rules 2015 . Now the Rule 2(1)(c)(viii) has been amended incorporating the relatives of the Directors of the private Limited Company as well. The amended Rule 2(1) (c) states that “any amount received from a person who at the time of the receipt of the amount, was a Director of the Company or a relative of the Director of the Private Company. Thus, the Private Limited Companies can now accept Loans from the director as well as relatives of the director. But care should be taken not to accept loans from the shareholders of the Company or the relatives of the shareholders as the rules permit only the Directors and relatives thereof. Also, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the Company shall disclose the details of money so accepted in the Board’s Report”

♠  Now, let us clarify as to who shall be classified as the relative of the Director. The provisions pertaining to the relatives has been defined in Section 2 (77) of the Companies Act 2013 which states that:

  • ‘‘relative’’, with reference to any person, means anyone who is related to another, if—

(i) they are members of a Hindu Undivided Family;

(ii) they are husband and wife; or

(iii) one person is related to the other in such manner as may be prescribed;

The point (iii) of the above definition includes:

  • Father ( including Step Father)
  • Mother (including Step Mother)
  • Son (including Step Son)
  • Son’s Wife
  • Daughter( including Step Daughter)
  • Daughter Husband
  • Brother (including Step Brother)
  • Sister (including Step Sister)

(Author Mayank Phutela is a Licentiate ICSI)

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One Comment

  1. Chandresh Bardia says:

    Read Article very useful but i have a query regarding this ……..
    My Query is ” As you mention in this article “any amount received from a person who at the time of the receipt of the amount, was a Director of the Company or a relative of the Director of the Private Company. –
    now if Director Resign From Directorship after give Sum to the Company than now whether this amount treated as Deposit or not

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October 2020