Relative of Directors-urgent

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CS Vandana Kacholia (Querist)
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27 July 2009 1)A private company can accepts loan from relative of directors but what when that relative is also an employee of the company?

2)we have to make them shareholders by transfering shares from directors to them:

(a) so transfer of shares would be from the date when company takes loan from relative of director?

(b) can shares be again transferred to directors when still that relative's loan exist and even he is in employment also??

Thanks & Regards
Vandana Kacholia

Ankur Garg

Ankur Garg (Expert)
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27 July 2009 Hi,

As per my understanding of Deposit Rules, 1975 still you can claim exemption given under the said rules even if relative of directors is also an employee of the company.

So there is no need to follow the long path of transfer of shares and no need to make him shareholder of such Pvt. Company.

To conclude I would say your private company can accepts loan from such relative of directors even if he is employee of the company. You may go ahead.

Best Regards

CS Vandana Kacholia

CS Vandana Kacholia (Querist)
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27 July 2009 Thanks But i am still confuse bcz we cannot accept loans from employees as it will be termed as deposit and we can accept loan from relative of directors as its exempt so being a employee of company can we take loan from relative of directors??

A loan from employee would be acceptable only when he is also a shareholder i.e. an employee can be shareholder cum investors also

Plz Suggest!!

Regards
Vandana

Ankur Garg

Ankur Garg (Expert)
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27 July 2009 As per my earlier reply exemption is still available because once a relative is always a relative and his status is not lost.

However if you are not sure then you may go for transfer of shares.

Transfer of shares should be prior to the date when company takes loan from relative of director.

Later on you may again transfer the shares to the director.

Regards

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CS Vandana Kacholia

CS Vandana Kacholia (Querist)
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28 July 2009 Thanks again.

According to deposit Rules, 1975 director or relative of director or member from whom money is received will furnish a declaration in writing to the company so is there any specific format of this declaration or else can you suggest something??

Thanks & Regards
Vandana Kacholia

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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21 July 2025 Here’s a concise summary addressing your queries about loans from relatives of directors who are also employees, and the declaration format under the Deposit Rules, 1975:

1. Loan from Relative of Director who is also an Employee
Exemption under Deposit Rules, 1975:
The rules exempt acceptance of loans from directors or their relatives (even if the relative is an employee) from the definition of "deposit". The key factor is the relationship (relative of director), not their employee status.
Employee Loan vs. Relative Loan:
Normally, loans from employees may be considered deposits and have restrictions unless the employee is also a shareholder. However, since the loan is from a relative of director, the exemption applies regardless of the relative’s employee status.
Share Transfer:
Transferring shares to the relative before accepting the loan is a cautious approach but not mandatory as per the Deposit Rules if the person is a relative of a director. You can transfer shares back later if you want.
2. Declaration under Deposit Rules, 1975
The depositor (director/relative/member) must furnish a written declaration stating the amount lent is not considered a deposit as per the Deposit Rules.
There is no prescribed format in the law, but a simple format includes:
Declaration Format (Sample)

Date: _______________

To,
[Company Name]
[Address]

Subject: Declaration under the Companies (Acceptance of Deposits) Rules, 1975

I, [Name of lender], son/daughter/spouse of [Name of director], residing at [address], hereby declare that the amount of Rs. _______ lent to [Company Name] on [Date] is not a deposit as defined under the Companies (Acceptance of Deposits) Rules, 1975, as I am a relative of the director of the company.

Signature: _______________
Name: ___________________
Designation/Relationship: _______________
Summary:
Loan from relative of director who is employee = exempt from deposit definition.
Declaration in writing is needed from the lender (relative).
Share transfer is optional but can be done for extra caution.
No strict format prescribed for declaration; use a simple written statement as above.

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