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Regarding conversion of loans into shares

(Querist) 24 May 2017 This query is : Resolved 
The Company, in which I am working as a Senior Accounts Manager, is an Unlisted Public Company. The Company had taken Unsecured Loans from the Directors of the Company to the tune of Rs.3 Crores. The Directors now wish to convert their loans into shares of the Company.

What is the procedure for converting loans into shares?

Are there any case laws for the same (in case if there is any Income Tax problem)

Please provide the necessary details at the earliest.

Thanks in advance
DR.VEDULA GOPINATH (Expert) 25 May 2017
mr kumar

Plase send me your memorandum and articles of association for conversion of loan into equity.

It can done subject to certain legal documentations.

cs dr vedula gopinath
sr advocate/arbitrator
vgnath@gmail.com
ml9866013121
dr g balakrishnan (Expert) 25 May 2017
companies resort for conversion of loans into shares; but that way banks do grant loans nit knowing the canyon there ; fact is there may be a statute but do u think tenable- when you can't go for public offers called IPOs. absolutely not if matters land into litigation cycles; banks loan depositors' funds, depositors never gave blank chit to banks to do that - more so if bank fails under NPAs, naturally Banks' have to meet tort laws , like liquidated damages, govt cannot use tax payers funds in revenue to save such banks, but law makers might quote their own statutes, obviously not tenable just because u cannot make statutes this way and that way, the law makers' can be personally held accountable under law f contracts r/e law of crimes, never law of crimes nor the law of contracts have exempted these worthies, so these worthies need to go behind bars if matters are fought on right lines. so i don't like these great funny ideas, better pay the loans to that you borrowed from the directors as unsecured creditors, sorry friend . tks.
dr g balakrishnan (Expert) 25 May 2017
Laws are not to be misused be what ever you are?
dr g balakrishnan (Expert) 25 May 2017
conversion of loans into shares if you can't pay loans obviously a foolish thought, loan is a loan, share is a share but have different personalities dear. that is t be recognised by rule of law, so we have to have to honor constitutional basic tenets. if not you directly is in conflict with constitution which could be treated as a contempt of the constitution. constitution is not to be used for your convenience only but you have play the rule of games, ca you change cricket game rules or foot ball game basic rules ...think a little if you can think as a man of common sense.
dr g balakrishnan (Expert) 25 May 2017
Advocacy is centered on the rule of law that is your basic constitution, not by just statutes only - if statutes fail constitutional tenets you obviously cheat the very public laws is very obvious. sorry. i don't advice you to do wrongs of basic paradigms of law as such.
Guest (Expert) 25 May 2017
Dear Author-Mr.Rakesh Kumar There is nothing absolutely Illegal in your query and it is one of the normal Procedure only
Guest (Expert) 25 May 2017
The Directors obviously the Lenders had given the consent that the Loan amount would be accepted back by them in way of company's shares and nothing wrong or illegal in it
Guest (Expert) 25 May 2017
As your company is not a Listed one Only the formalities to be complied with ROC
Guest (Expert) 25 May 2017
Your self could meet the concerned ROC in person to know the formalities,formats and Procedures
Guest (Expert) 25 May 2017
Obviously A Board Resolution to be Passed Regarding this
Guest (Expert) 25 May 2017
Confirm every thing in detail with ROC by approaching a friendly good Officer
Guest (Expert) 25 May 2017
For any doubts you could contact here always
Guest (Expert) 25 May 2017
All the Best
krishna mohan (Expert) 25 May 2017
Shares are invested by the share holders either closely held or by public. In this case it appears closely held. Director gave a loan wants to convert it to shares. As rightly advised by Mr.Rajkumar you need to check with ROC of your zone to find out permissibility and formalities to comply with. Alternatively you can approach a CA or a legal expert specialization on this area or your own Auditor to assist you legally and procedurally as this will have impact on your balance sheet also.
Guest (Expert) 25 May 2017
Thanks Mr.Krishna Mohan
Guest (Expert) 25 May 2017
An Experienced ACS- Company Secretary would be the Right Person for this than CA or Advocate
dr g balakrishnan (Expert) 25 May 2017
Here it is obviously loan from directors please, there was no option given by the directors to convert into shares if loans could not be returned is the fact is a surmise, assumed.
dr g balakrishnan (Expert) 25 May 2017
see sis, 'belief ' is he root cause of any law; if the belief of very weak person is obviously to be treated by all strong persons never exploit the poor - here if shares are bestowed on these directors obviously it might cause some harm to the weak or weakest share holders is obvious, so the call has to be taken by the company, the company might take bank loans to pay off the directors if they tacitly allowed their loans to be converted into shares, that could mean a backdoor method to usurp the company; such usurpation if statute allows, that statute is vitally 'ultra vires' the constitutional basic tenets and the fundamental rights assured in Part III of the constitution, obviously it is a well known fact even Art 368 never allows the Parliament as an Art 12 institution to abridge or expand the fundamental rights enshrined in Part III of the constitution is my considered view without any malice to any.
dr g balakrishnan (Expert) 25 May 2017
No statute can over ridge the constitutional proprieties is very obvious that was rightly emphasized by CJI Mr SR Das(FB) in C. Duraiswami v st of Madras (1951) when the state tried to enforce educational seat reservation under Madras code then that is rightly jus Mr KK Mathew rightly emphasized in his dissent opinion in a constitutional bench Smt Indira Gandhi v Rajnarain subsequestly...
Guest (Expert) 25 May 2017
Dear Author Mr.Rakesh Kumar you could Peacefully and Legally Proceed with your assignment with out any hurdles and there are No legal objections for your proposal
Guest (Expert) 25 May 2017
Seek the Procedures and Guidance from ROC
Guest (Expert) 25 May 2017
Take the Assistance of Experienced ACS/Company Secretary Please
Guest (Expert) 25 May 2017
All the Best Please
Rajendra K Goyal (Expert) 25 May 2017
May proceed as advised by the expert DR.VEDULA GOPINATH.
Guest (Expert) 25 May 2017
Well advised by Mr.RK Goyal Please


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