Loan given by a company to director or vice a versa

This query is : Resolved 

Querist : Anonymous (Querist) 19 April 2012

Dear Sir,

my question is
1) can a pvt. company give interest free loan to other corporate?

2) If a director provides loan to company, then what rate of interest should be charged by Director...
will 2(22)(e) applicable

3)can employee give a loan to company employer..

Waiting for ur reply ......

Ajay Mishra (Expert)
19 April 2012


1.The provision of section 295 regarding loan to director will not apply to private company.

2. 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.

Rule 3 of Companies (Acceptance of Deposits) Rules, 1975 deal with the limit upto which a company can accept deposits/ loans. Private company exempted this limit.

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.

3. definition of private company restrict to accept loan from employee, otherwise it will be treated as deposits.

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