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Loan from Shareholder Co. in case of Public ltd. co

Jyotika (study study n study) (147 Points)

01 April 2011

Dear all,

Pleas suggest can a public ltd company take loan from private ltd co. which is shreholder in public ltd. co,'

as public ltd company cannot take loan from its members that will be deposit

but loan take from another company does not fall in definition of deposit

pls clarify

jyotika

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10 Replies

SANTOSH SHAH (Company Secretary) (754 Points)
Replied 01 April 2011

Originally posted by : Jyotika
	Dear all, Pleas suggest can a public ltd company take loan from private ltd co. which is shreholder in public ltd. co,' as public ltd company cannot take loan from its members that will be deposit but loan take from another company does not fall in definition of deposit pls clarify jyotika

Hi Jyotika

In my VIEW, If the Pvt company is not a member, loan can be taken. ( Inter corporate Loan - Section 372A)

If Pvt ltd is member of Public ltd, then i dont think loan can be taken.

It will violate provisions of 3(1)(iii) (d) , where accepting loan or deposits from member will lead to

public company loosing its character from public to pvt ltd.

Other views / Experts Views solicited.

regards

Santosh Shah

Jaideep (Service) (1368 Points)
Replied 01 April 2011

Hi,

A public and private 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. The above is exempt from the deposit rules, 1975.

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

But if such company take loan from an individual (Not from director or member) the same would be considered as public deposit under section 58A read with Companies (Acceptance of Public Deposit) Rules, 1975.

Regards

Jaideep Pandya

Jyotika (study study n study) (147 Points)
Replied 01 April 2011

Thanks Jaideep,

but my query is if a public ltd co it takes loan from member that is deposit

now a publi ltd taking loan from member( that is a pvt ltd co.)

loan taken by one company from another is not deposit

confusion is that whether this exemption qualifies for members of public ltd company too if they are pvt ltd companies and not individual.

Thanks Santosh,

I think you have wrongly interpreted the query as company taking loan is public ltd co. 3(1)(iii)(d) is applicable on private ltd co.

SANTOSH SHAH (Company Secretary) (754 Points)
Replied 01 April 2011

Originally posted by : Jyotika
	Thanks Jaideep, but my query is if a public ltd co it takes loan from member that is deposit now a publi ltd taking loan from member( that is a pvt ltd co.) loan taken by one company from another is not deposit confusion is that whether this exemption qualifies for members of public ltd company too if they are pvt ltd companies and not individual. Thanks Santosh, I think you have wrongly interpreted the query as company taking loan is public ltd co. 3(1)(iii)(d) is applicable on private ltd co.

Dear Jyotika

Appologies. I wrongly interpreted. Violation of provisons of Sec 3 will make pvt company loose

its character and become public and not vice versa.

Coming to your question, i think taking loan from pvt ltd can be exempted from treating as deposit.

Company acceptance of deposit rules 1975 has one of the category which states " any other company".

"Any Other Company" could be any company in my view.

Rule 2

"deposit" means any deposit of money with, and includes any amount borrowed by, a company, but does not include-

(iv)	any amount received by a Company from any other Company.

regards

Santosh Shah

Jyotika (study study n study) (147 Points)
Replied 01 April 2011

confusion is that whether this exemption qualifies for members of public ltd company too if they are pvt ltd companies and not individual.

please clarify as I am still unable to find an answer

SkDash (CS (Member) CWA (Final)) (909 Points)
Replied 01 April 2011

Dear Jyotika

Can u pl clarify where it has been mentioned that a company cant accept deposit from its shareholders ? If this is the case, then how a subsidiary co accepts deposits from a holding co ? Pl reply

Rajeshwari Sharma (none) (21 Points)
Replied 01 April 2011

A public Company can take oan from a Pvt Company subject to provisions of Sec.372A.

Here Acceptance of deposit Rules are not applicable as deposit received by a Company from any other Company(that includes a pvt co. too) is excluded from applicability of the same.

And from the point of view of lender,Sec. 295 not applicable on a pvt ltd co unless it is a subsidiary of a public company.

Thus here disclosure as per AS-18 shall be required to be made in notes to accounts,and Sec.372A too has to be checked.

Jyotika (study study n study) (147 Points)
Replied 01 April 2011

Dear Santosh, query is of taking loan from shareholder in public ltd company, it will fall in the definition of deposit, then deposit rules will have to be complied.

Dear Rajeswari, your point is right that a public ltd can take loan from pvt ltd. , 372 A shall be applicable that too is fine.

query is regarding exemption from the definition of deposit:

Deposit defnition exempt loan from shareholder in case of pvt ltd. company only, hence loan from shareholder in case of public ltd. is deposit.

now loan taken from company to company are also exempt from definition of deposit.

confusion is whether this exemption will be applicable to member of public ltd company if membr is a pvt ltd company and not an individual.

SkDash (CS (Member) CWA (Final)) (909 Points)
Replied 01 April 2011

Jyotika- Inter corporate loans and adv as allowed u/s 372A and exempted in deposit rules stands and a pvt co which is a shareholder can give loan to a public co and it will not be considered as deposit. U must have seen all holding co are giving loans & advances to its subsidiary though holding co is the shareholder of subsidiary.