Loan acceptance by Private Company

This query is : Resolved 

Querist : Anonymous (Querist) 15 September 2010

Can a private company accept loan from persons other than members or their relatives?If it does What will be the consequence?

CMA. CS. Sanjay Gupta (Expert)

15 September 2010

Yes. A pvt ltd company can take loan from persons other than members and their relatives. No restriction on acceptance of loan from others.

Ankur Garg (Expert)
15 September 2010



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 takes 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 and would be considered as a serious violation of section 3(1)(iii).

In case of this default consequences under section 43 shall apply.


Manmohan ACA, CS (Expert)
15 September 2010

A Private Limited Company is restricted to invite deposits by AOA itself. This is mandatory provision in terms of Section 3(1)(iii) of the Companies Act, 1956. Moreover, If you read Rule 2(ix) of the Companies (Acceptance of Deposits) Rules, 1975, it is very clear that unsecured loans received by the a private limited company in contravention of Section 3(1)(iii) of the Companies Act, 1956 will fall under deposit. Even the unsecured loan from members, Directors and relatives of Directors will also be treated as Deposit if a declaration to that affect has not been obtained.

So, contravention of above will amount to Deposit.


Aditya Maheshwari (Expert)
15 September 2010

Dear Ankurji
I have a query in the above.
As per Companies (Acceptance of Deposits) Rules, 1975

3. Deposit means deposit of money and includes any amount borrowed by a company, but does not include certain types of borrowings; viz. amount received :

i) from a director in case of any company or from a shareholder in case of a private company out of his own funds (that is not borrowed or accepted from others) including a Company which has become public u/s.43A so long as it retains S. 3(1)(iii) conditions in its Articles. The director / shareholder concerned however has to furnish 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.

So in the above case is relative of director or shareholder not covered u/s 58A i. e. if a loan is taken from relative of director then the same will not be considered as publice deposit?

Kindly clarify my doubts.

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