Query on borrowings from directors of a public company

nothing is violated,

but it has to be disclosed under related party transaction in financial statements

Originally posted by : VIKAS.A
	nothing is violated, but it has to be disclosed under related party transaction in financial statements

Totally agree with it.

A public Company cannot accept loan from Individuals/Directors. Loan from Individuals/ Directors will be covered under section 58A of the Companies Act and will be governed by Companies (Acceptance of Deposits) Rules, 1975.

Loan from directors is not covered in 'deposits' u/s 58A if the director has given a declaration to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others [Rule 2(b)(ix) of Companies (Acceptance of Deposits) Rules 1975].  However, if the director is also a shareholder of the company, it will be covered u/s 58A and hence all formalities applicable to public deposits will have to be complied with since loan taken by a public company from its shareholders is covered u/s 58A.

Dear P C Agarwal,

The exemption under rule 2 (b) (ix) is available to a private Company; it is not available to public Company.

Dear Kamal,

Pl go through Rule 2(b)(ix) which is reproduced below:

Here the words 'the company' includes both private as well as public companies.

Thanks

@ P C Agarwal.  Thanks for clearing my doubts...