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Can Public Ltd Co. accept deposits from Directors

Radhesh Bhoot (Aspiring CA) (229 Points)

21 January 2010

Can a Public Ltd co. accept Deposits from Directors if Yes then what are the conditions, provisions and procedures for the same and also pls specific under which sec or rules????

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17 Replies

Aman Jain (Company Secretary in Practice) (165 Points)
Replied 21 January 2010

Section 58A of the Companies Act, 1956 governs acceptance of deposits by companies. Some deposits are exempted, subject to declaration as to own funds. In this write-up we are concerned with declaration made by a depositor who is in case of private company

a) Any Director of private company,

b) Any relative of a Director of private company, (recently added)

c) Any member of the company, ('member' substituted for 'shareholder')

in case of a limited company is a Director of the company at the time of making the deposit with the company.

plz check this :- Rule 2 (b) (ix) of the Companies (Acceptance of Deposits) Rules, 1975.

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 21 January 2010

Kindly appreciate, A private limited company can take unsecured loan from its shareholders and the same would not be covered under section 58A and other deposit provisions as such transaction is exempt by deposit rules 1975.

Kindly appreciate, A public limited company can take loan from other company and body corporate and the same would be covered under section 372A as an inter corporate loan.

A public company can also take loan from Banks/PFIs under the same section 372A as an inter corporate loan.

But if such company (public company) take loan from an individual or from its director the same would be considered as public deposit under section 58A read with Companies (Acceptance of Public Deposit) Rules, 1975.

As per the definition of deposit given in Rule 2 of the said rules “deposit means any deposit of money with and include any amount borrowed by, a Company but does not include certain amounts.

There are certain amounts which are not considered as deposit as per the rules above and such amount includes inter corporate transaction hence amount taken by company/bank and PFI are not considered as deposit.

On the other hand amount taken by public company from individual is not covered in the exemption given by the said rule, hence amount taken by public company from individual including its directors or members is considered as deposit under section 58A read with Companies (Acceptance of Public Deposit) Rules, 1975.

Regards

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 21 January 2010

Dear Friend,

Ofcourse, a public company can accept deposit from its directors. However, it is an exempted deposit.

As per Acceptance of Deposit Rules, 1975 Rule 2(b)(ix)

deposit meany any deposit of money .. but does not includes....

Any amount received from a person who at the time of the receipt of the amount was a director of the company.

Provided that the director from whom the money is recieved furnishes to the company at the time of giving the money 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.

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 21 January 2010

Originally posted by : Ankur Srivastava
	Dear Friend, Ofcourse, a public company can accept deposit from its directors. However, it is an exempted deposit. As per Acceptance of Deposit Rules, 1975 Rule 2(b)(ix) deposit meany any deposit of money .. but does not includes.... Any amount received from a person who at the time of the receipt of the amount was a director of the company. Provided that the director from whom the money is recieved furnishes to the company at the time of giving the money 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.

Hello Ankur,

I think you are misinterpreting somewere as you are saying deposit accepted by public company from its director is an exempted deposit.

Whereas as per my understanding deposit accepted by a private company from its director is an exempted deposit. Kindly refer the rule below:

(ix) any amount received from a person who, at the time of the receipt of the amount, was a director of the company or any amount received from a relative of a director or its member by a private company:

Provided that the director, relative of a Director or member, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, 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;

Kindly guide me further. Regards

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 21 January 2010

Remember whole clause is about a private company. This interpretation is quite a settled one.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 22 January 2010

Dear Ankur Ji,

Sir please read as under:-

ix) any amount received from a person who, at the time of the receipt of the amount, was a director of the company or any amount received from a relative of a director or its member by a private company:

Thus, deposit from director is exempted in both private as well as public company.

Moreover in case of Private company the provisions of deposit shall not apply because private company can only accept deposit from its director, members or relative thereof and deposit accepted all of them is exempted deposit as above.

Radhesh Bhoot (Aspiring CA) (229 Points)
Replied 23 January 2010

Thanks to all for replying and the i got the answer....

zarana (cs and compliance officer) (25 Points)
Replied 12 March 2010

dear friends

pls let me know for public companies only

i understand that directors of both private and public cos are exempted wen the lend money to company

bt wat abt wen my director is a shareholder also of that same co. ?????

pls let me know whether the amt given by director/shareholder will be treated as deposits???

i hope u all can provide me with case law also

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 12 March 2010

You are right Deposit from director is exempted in both private as well as public company.

However if you director is also a shareholder then the above exemption is not available to you as your company is a public company.

Views of other members solicited.

Manali (cs) (21 Points)
Replied 12 March 2010

Dear All,

1. Can a Public Limited Company on the request of the Deposit holder pre mature its FD within 3 months from date of issue?

If yes, then what interest to be paid i.e No interest or with reduction of 2%

2. The deposit holder is holding different deposit receipts with different maturity period? Now, he wants to have a consolidated FD receipt ?

how this can be possible without loss of interest?

Parmod Agarwal (Assistant Manager) (394 Points)
Replied 13 March 2010

Dear Manali,

As per company Act in the fixed deposit rule FDR cannot be premature within 6month of date of issue of the FDR. After 6 month of completion, FDR can be premature with the reduction of 1% of interest.

in second case it is not possible to issue him a consoliated FDR because his FDR are different issue date. Only one solution is available with him that he got the FDR Refund on the date of Maturity after that when the another FDR is mature then he can pay additional cheque to the company and in this case his FDR can be consoliated.

Thanks

Parmod

Mitali Agarwal (Company Secretary) (638 Points)
Replied 13 March 2010

Originally posted by : Ankur Garg
	You are right Deposit from director is exempted in both private as well as public company. However if you director is also a shareholder then the above exemption is not available to you as your company is a public company. Views of other members solicited.

Hello Ankur Sir and other learned members,

I would like to confirm again that if Mr. A & B are directors and also the shareholders of a public co., then whether they can give unsecured loans to the co. and such loans would be exempted from Section 58A as they were directors at the time of giving loan.

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 13 March 2010

Originally posted by : Mitali Agarwal
	Originally posted by : Ankur Garg You are right Deposit from director is exempted in both private as well as public company. However if you director is also a shareholder then the above exemption is not available to you as your company is a public company. Views of other members solicited. Hello Ankur Sir and other learned members, I would like to confirm again that if Mr. A & B are directors and also the shareholders of a public co., then whether they can give unsecured loans to the co. and such loans would be exempted from Section 58A as they were directors at the time of giving loan.

Okay Mitali.

Kindly confirm that if a person who is also a member is ready to provide 2-3 crore to my public company. After appointing him as additional director for sometime can we go ahead. Can we treat this as an escape route. Next year there is no plan to regular him as director but his membership will continue.