Unsecured loan by a private limited company

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Pranay Patel (Querist)
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01 October 2013 Dear Members,

Please give your views on my following query;

Can ABC (a partnership Firm) give unsecured loan to ABC Private Limited.?

Where, the Directors of ABC Pvt. Ltd. are also the partners of ABC.

What provisions of Companies Act or Income Tax Act are required to be seen in this condition.

Please share your views.

Ajay Mishra

Ajay Mishra (Expert)
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01 October 2013 Hi

Deposits from Partnership firm:

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.

Pranay Patel

Pranay Patel (Querist)
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01 October 2013 Dear Sir,

As per my understanding this is the interpretation of Rule 2(b)(ix) of Acceptance of Deposit Rule, 1975.

I just put my exact situation;

ABC having 5 partners out of these 5 partners 3 are directors in ABC Pvt. Ltd. and remaining 2 partners of ABC are relatives.

Now, in this case, whether ABC Pvt. Ltd. can accept unsecured loans from ABC.

It'll a great help from you if you can refer me any case law in this regard or any section/ provision/ rules in this regard.

Many Thanks.

Ajay Mishra

Ajay Mishra (Expert)
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02 October 2013 Hi

If you read Rule 2(b)(ix) of the Acceptance of deposit Rules, 1975, then it will says that if private company are taking unseured loan from patner ship fir, as per stipulated condition will not be treated as deposit and they are eligible to take such loan.

In your case your company is eligible to take loan from such partnership firm.

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