Unsecured Loans from Directors & Relatives

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CA Sanjay Baheti (Querist)
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19 February 2011 A Pvt.Ltd.Co.incorporated in 1994. The Authorised & Paid Share Capital is Rs.100 lacs & 1 lacs respectively. till 31.03.2010 there were no Business Activities. However w.e.f. 01.04.2010 & onwards the co. is going to set up a manufacturing Plant which is under construction Stage. During the year 2010-11 the co. has taken loans fro Directors & relatives to the extent of Rs.125 lakhs till date.

Is any contravention or voilations as per Companies Act.

Moreever whether A director's HUF is considered as relative of Director as per Act.
Please clarify.

Jayashree S Iyer

Jayashree S Iyer (Expert)
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21 February 2011 Taking loans from Directors and their relatives is exempt from the term "Deposits" and hence there is no violation as per Companies Act.

According to me A director's HUF is not considered as relative of Director but members of a HUF is a "relative". For definiton of "relative" please refer to Section 6 of the Companies Act read with Schedule IA.

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