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Unsecured Loans from Relative of Director (Corporate Law)

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( Author )
20 October 2010

A company had taken a Unsecured loan from Director as well as from Relative of Director, but later on the Director ceased to be a director of the company.


What is the current status of the Unsecured loan of Director and as well as of relative of Director? Will it be treated as Deposit u/s 58A of the Companies Act,1956??

Best Regards,
Ritin Kharbanda


Ajay Mishra

( Expert )
20 October 2010

Dear Friend


1. Deposits in case of Private Limited Company

Private Company is prohibited to accept any invitation or acceptance of unsecured loans/deposits from the persons other than its members, directors or their relatives. Therefore a private company can accept deposits through private arrangement from its members, directors and their relatives.

Rule 2(b)(ix) exempt any unsecured loan money received from directors and shareholders from the definition of deposits. According to Rule 2(b)(ix), any amount received from members of a private company limited by guarantee are not exempt.

For any invitation and acceptance of unsecured loan/deposits from relatives of directors and member, the company will have to file a statement in lieu of advertisement in accordance with the provisions of Rule 4A of the Companies (Acceptance of Deposits) Rules, 1975. The company will also have to file annual return of deposits in accordance with Rule 10.

2. Consequences of acceptance of deposit by Private Limited Company

If a private company acceptance an amount, which may be classified as deposit under section 58A read with Companies (Acceptance of Deposits) Rules, 1975, it will cease its status of a private company and has to make all the compliances for such deposits as per the requirement of said rules, as well as to comply with all the provisions as may be applicable on public limited company such as section 58A, 58AA, 58AAA, 81, 256, 257, 198, 268, 269, Schedule XIII, 274(i)(g), 295, 297, 300, 301, 372A, etc


Ritin Kharbanda

( Author )
20 October 2010

Sir, my question is whether Unsecured Loan taken by a Pvt Company from its directors and their relatives be treated as par with with deposits after cessation of directorship ?


Aditya Maheshwari

( Expert )
20 October 2010

Position at the time of taking deposit should be seen. At that time there was no violation. hence it should not be violative of Section 58A.


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