A private limited company accepted an amount as short term advance from a person who was neither a director or relative of director or a shareholder of the company at the time of giving the advance to the company. However, that person became a director of the company just after 1 month of giving that amount to the company. He gave some more short term advance to the company after becoming director of the company also.
Now the problem is that as per the Companies (Acceptance of Deposits) Rules, 1975, the amount given by the person prior to becoming director of the company will be treated as deposit. Further, as per section 3(iii) of the Companies Act, a private company cannot accept deposit from persons other than its members, directors or their relatives.
Can someone tell a practical solution to escape from this violation? Can someone who has seen this before share his/her experience?
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