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Loan from director

VIPUL BHANDARI (CA FINAL STUDENT) (243 Points)

29 July 2011

My Director is providing a loan to our company(Private Limited Company). He want that company should repay loan with interest back to him in certain period.

My Director is NRI (i.e. from UK)

My query : If he provide loan in pound sterling & we have to repay back the same in pound sterling currency , whehter any RBI or FEMA compliance is required.

Please also suggest if we have to follow other compliance for the same.

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3 Replies

Ankit Patniya (Assistant Company Secretary) (124 Points)
Replied 29 July 2011

Hello Vipul,

In your case there is foreign direct investment and you have to check whether the amount is such that which attract approval rout or not if yes you should have follow proceedure as laid down in fema and rules made thereunder. RBI isseues Master circular for that behalf every year on 1st july you can found it on net find master circular and verify.

If there is no need to approval than the AD I bank of your director have to intimate RBI about such transaction and no need for approval only intimation will reqier.

Thanks

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 29 July 2011

I think it will be hit by ECB. ECB norms under FEMA will have to be complied with

CS SIDDHARTHA BANIK (COMPANY SECRETARY) (771 Points)
Replied 30 July 2011

Hi,

RBI’s ECB Guidelines has specifically provided ECB procedure, it’s terms and conditions, eligible lenders, maturity etc.

I have gone through the list of eligible lenders. The name of director of the company is not there. However an equity share holder can provide ECB provided minimum holding requirement should be complied with.

Therefore, I have doubt about legality of this types of loan(if the director is not equity holder as above). Better take RBI’s opinion before proceeding.

Thanks,

CS Siddhartha Banik