Unsecured Loan From Directors and Shareholders

Dear Experts,

Please clarify what provisions of companies act are attracted if a Public C. take  or give loans from or to a private company (in which directors are common) and also if in case, directors are not common. 

Kind Regards

Meeta Sharma

Hi

Meeta

If Public Limited Company accept or raise Unsecured Loan from Private Limited it is exempted under provisions of section 58 A- Being Inter Corporate Deposit and same for Private Limited Company.

If public Limited Company give or advance loan to Private Limited Company then Public Limited Company should adhere to the provisions of section 372A and if common director then also see provisions of section 295 and 283(1) (h) of the Act.

As per provisions of Section 372A no  public limited Company  can mae loan to any other bod corporate, give any guarantee or provide security in connection with a loan made by any other person to or to any other person by, any body corporate or acquire by way of subscripttion purchase or otherwise the security of any other body corporate exceeding 60% of its paid up capital and free reserves or 100% of its free reservers which ever is more without passing of special resolution passed in general meeting.

Brief of section 295 attached.

Further in case of Any loan adance by private limited Company to public limited or private limited Company , section 295 an 372A not applicablr 

Vasant Patel

can a private limited company take loan from non banking financial comapnies

Can a private company pay 18% rate of Interest on unsecured loan as taken by the Pvt. Company fom its member ?

Yogesh Choudhary

Company Secretary.

No....

The maximum rate of Interest is 12.5%

Sorry I would correct...

Public company cannot pay such interest

A private company can pay interest at such rate because the provisions of Acceptance of Deposit Rules, 1975 does not apply on Private Company

Thank You Ankur Sir,

Yogesh Choudhary

Company Secretary 

Dear Renu

Directors can take loan only from Shareholders and Relatives, relatives here means relatives as defined in company law .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. (Their way out for non applicability of Sec 58A.)

Dear All,

Please clarify can a public ltd co. take loan from its shareholder(which is pvt ltd.co.) as loan taken from othr company are exempt to be treated as deposit. But confusion is that public ltd. company cannot accept laon from its member .

thanks

csjyotika

Originally posted by : Jyotika
	Dear All, Please clarify can a public ltd co. take loan from its shareholder(which is pvt ltd.co.) as loan taken from othr company are exempt to be treated as deposit. But confusion is that public ltd. company cannot accept laon from its member .     thanks csjyotika

 Dear Jyotika,

I agree with you.

In my opinion, Public company can take loan from pvt company subject to limits of

Sec 372A ( Inter Corporate Loan), only when it is not a member.

But if private limited is a member of public ltd, then question arises is that,

is it not violating the provisions of Section 3(1)(iii)(d) of Companies Act 1956?? by accepting loan from a

member.

If public company does so by accepting loan from pvt ltd being member, then the company cannot

be treated as public company and will become private .

Experts Please advice and Clarify this matter.

regards

Santosh Shah

Dear Santosh, I think there is some wrong interpretation as public company is taking loan so no question of violation of 3(1)(iii)(d) arises.

This is a case to be contrued with reference to definition of deposit and cases which are exempted from treating as deposit.

thanks'

jyotika

Originally posted by : Jyotika
	Dear Santosh, I think there is some wrong interpretation as public company is taking loan so no question of violation of 3(1)(iii)(d) arises. This is a case to be contrued with reference to definition of deposit and cases which are exempted from treating as deposit. thanks' jyotika

 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".

Rule 2

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

regards

Santosh Shah

Thanks santosh,

I know this exemption, but unable to interpret whether this will make a public co to take loan from member if member is Private ltd company and not individual.

Lets continue this discussion in my another post on same topic

What are the consequences/penalties, if a private limited company take unsecured loan from an individula (other than members directors & there relatives)?

That will be termed as deposits u/s 58A, so check that section and deposit rules for penalities and procedures.

Thanks.