Introduction of director's funds

Sec 3(1)(iii) of Companies Act, 1956 and Articles of Association of Company prohibits a private company to accept or invite the deposits from the persons other than its members, directors or their relatives.

Further, Rule 2(b)(ix) of Companies (Acceptance of Public) Deposits Rules, 1975 reads as under –

     “Deposit means any deposit of money with, and includes any amount borrowed by, a company, but does not include any amount received by a private company from a person who, at the time of the receipt of the amount, was a director, relative of director or member

      Provided that the 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.”

Hence, the director is not allowed to make loan out of its borrowings as declaration is also required tobe given.