Loans to private company

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k.c. palai

M.Com

29 Points Posted on 25 June 2014

Dear Learned Members,

Mr. A is a relative of a Director of a Private Company, PQR Pvt Ltd. Mr. A has given a loan of Rs. 1 Crore to the Company at different dates but all before 1st April, 2014. As per the Companies Act, 2013 all loans given by a Shareholder or a relative of a director to a Private Limited Company before 1st April, 2014 would now be treated as deposits and has to be repaid back within 1 year from the date of the commencement of the act (i.e., 1st April, 2014) or the due date of the loan whichever is earlier.

Mr. A is now appointed as a director of PQR Pvt Ltd (post 01.04.2014) and as a director gives a loan to the Company of Rs. 2 Crore by which the Company repay his amount of Rs. 1 crore back to him for the loans taken previously from him (now being treated as deposits).

Request you to guide me whether such arrangement is possible.

Thanks & Regards,

K C Palai

Replies (2)

P C Agrawal

Registered independent director Past Ch

5233 Points Posted on 25 June 2014

A) Loan given by Mr A as a relative of a director:

It is covered u/s 74. Return has to be filed by 30.6.2014 and loan has to be returned by 31.3.2015. (Just note drafting error in the Section. The words 'whichever is earlier' has not been mentioned in the Act, though we can assume the same to be on safer side.)

B) Loan given by Mr A as a director:

It will be exempt only if he gives declaration that the amount has not been given by him out of borrowed funds. [Rule 2(1)(c)(viii)]. If such declaration is given, the amount can be repaid as per mutual agreed terms. However, this will have no impact on earlier loan given before he became a director. It will still be governed by Sec.74.