Listed public limited company loan

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 January 2013 Suppose A is a director XYZ Limited (listed on bse)
1. Whether XYZ limited can take loan from A HUF.

2. whether A HUF gives loan to director A and then Director A gives loan to XYZ Limited.

Plz advise which option is possible 1 or 2.

Also please suggest other solution for bringing money from A HUF into XYZ limited.

Ajay Mishra

Ajay Mishra (Expert)
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16 January 2013 Hi

A public company can take loan from its director and it will not be treated as deposits. Provided that the director, relative 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 money is not given out of funds acquired by him by borrowing or accepting from others. (substituted by the Notification No. GSR 189(E) dated 12th March, 2004)

Ajay Mishra

Ajay Mishra (Expert)
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16 January 2013 In case of option 2, it will be treated as deposits for public limited company. For private limited company it is exempted from deposits.

Acceptance of deposit by a private company from a partnership firm:—
(a) If all partners of the firm are also the directors of a private company, such private company can accept unsecured loans/deposits from the firm. This case will be covered under rule 2(b)(ix) i.e. such a deposit is an exempted deposit.
(b) If all partners of a firm are not the directors of a private company i.e. some of them are the directors and remaining are the shareholders, still private company can accept deposit from the firm.
(c) If all partners of a firm are not the directors of a private company i.e. some of them are the directors, some of them are shareholders and remaining are relatives of a partners who is a shareholder. This case is not covered under rule 2(b)(ix).
(d) Where some partners are directors in a private company and remaining partners are not their relatives, private company cannot accept deposits from such firm.

Querist : Anonymous

Querist : Anonymous (Querist)

16 January 2013 Dear Sir,

I am not very clear with the reply.

Plz confirm whether A (HUF) can give loan to XYZ Limited (Public Limited Company listed on stock exchange).

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2024 In the context of a listed public limited company (XYZ Limited) and its director (A), here’s a detailed explanation regarding the possibility of obtaining a loan from an HUF (Hindu Undivided Family) and the rules around it:

### **1. Loan from A HUF to XYZ Limited**

**Legal Framework:**

1. **Regulations on Loans:**
- **Companies Act, 2013:** Under Section 185 of the Companies Act, 2013, a company is generally prohibited from giving loans to its directors or to any other person in whom the director is interested. However, there are exceptions, such as loans to companies in which the director is a director or a member, provided certain conditions are met.
- **SEBI Regulations:** As XYZ Limited is a listed company, it must comply with SEBI (Listing Obligations and Disclosure Requirements) Regulations, which also regulate transactions involving related parties.

**Loan from A HUF:**

- **Direct Loan:** XYZ Limited can take a loan from A HUF if A HUF is a shareholder of XYZ Limited, and the loan is made in compliance with the regulations concerning related party transactions. In this scenario, A HUF should not be a direct shareholder or director of XYZ Limited to avoid conflicts of interest and comply with legal norms.

- **Conditions to Fulfill:**
- **Disclosure:** Such transactions must be disclosed to the Board of Directors and should be approved as per the requirements of the Companies Act.
- **Shareholder Approval:** The transaction may also need approval from the shareholders if it involves substantial amounts or is deemed a related party transaction.

### **2. Loan through Director A**

**Legal Framework:**

- **Loan to Director A and then to XYZ Limited:**
- **Prohibited Transactions:** This indirect method of providing a loan is typically not permissible as it circumvents the regulations prohibiting loans to directors. If Director A’s HUF lends to him personally and he then lends to XYZ Limited, it still constitutes a loan to a director and might be scrutinized under the same regulations.
- **Regulatory Scrutiny:** This method could attract scrutiny for being a way to bypass the regulations under Section 185 and could be deemed non-compliant or improper.

### **Other Solutions for Bringing Money from A HUF to XYZ Limited**

1. **Equity Investment:**
- **Shares Purchase:** A HUF can invest in XYZ Limited by purchasing its shares, thus providing equity capital to the company. This method does not violate regulations as long as it is done transparently and complies with disclosure norms.

2. **Subscription to Securities:**
- **Convertible Debentures or Bonds:** XYZ Limited can issue convertible debentures or bonds to A HUF, where the HUF provides funds in return for these financial instruments. The terms should be compliant with the Companies Act and SEBI regulations.

3. **Corporate Guarantees:**
- **Providing Guarantees:** A HUF can act as a guarantor for loans taken by XYZ Limited from banks or other financial institutions. This requires proper documentation and compliance with the regulatory norms.

4. **Non-Interest Bearing Loan:**
- **Interest-Free Loan:** If permissible, XYZ Limited could potentially receive an interest-free loan from A HUF, subject to the company’s policies and applicable regulations.

### **Conclusion**

**Direct Loan from A HUF to XYZ Limited** is possible under certain conditions but requires compliance with legal and regulatory requirements. The **indirect method** of loaning through a director is generally discouraged and could lead to non-compliance issues. The most transparent and compliant approach would be to consider **equity investment or subscription to securities** and ensure all transactions are properly documented and disclosed.

For specific transactions, it is advisable to consult with legal and financial experts to ensure full compliance with the regulatory framework.

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