Understand the treatment of loans from directors or shareholders in compliance with the Companies Act, 2013. Explore exemptions, disclosure requirements, and procedures for loans from directors and members.

The Companies Act, 2013 does not contain a particular section that addresses the rules pertaining to director loans. However, the issue must be understood in light of the limitations placed on the company’s borrowings by the legislation.

According to Section 2(31) of the Companies Act-Deposits include any receipt of money by way of deposit or loan or in any other form by a company but do not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

Loans from a Director-

Loans from Directors are not considered as deposits [Rule 2(1) (vii) of the Companies (Acceptance of Deposits) Rules, 2014]. Amount received as a loan from a director of the company is not considered as a “deposit” as the same is covered under the list of exempted deposits.

A company accepting a loan from directors (not considered as deposit) shall comply with the following-

  • A company shall be required to file e-form DPT-3 for the transactions not considered as deposits i.e., Exempted Deposit.
  • The Director of the company shall furnish in writing a declaration to the effect that the amount is not being given out of borrowed funds; and
  • Disclosure of the details of money so accepted by the Company in the Board’s Report.
  • Disclosure in its financial statement, by way of notes, about the money received from the directors, or relatives of directors.

Loan from a Member-

Loan from member fall under the definition of deposit and procedure of Section 73 will be applicable in    case of accepting loan from members.

MCA issued exemption notification for the following private companies-

(a) which accepts from its members monies not exceeding one hundred per cent. of aggregate of the paid-up share capital, free reserves and securities premium account; or

(b) which is a start-up, for five years from the date of its incorporation; or

(c) which fulfils all the following conditions, namely: –

(1) which is not an associate or a subsidiary company of any other company;

(2) if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid-up share capital or fifty crore rupees, whichever is lower; and

(3) such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under this section:

This exemption can only be availed if company has not defaulted in Annual Return and Financial Statement.

Author Bio

Qualification: Student - CA/CS/CMA
Company: Eminds legal
Location: NEW DELHI, New Delhi, IN
Member Since: 05 Oct 2020 | Total Posts: 1

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February 2024