sunil (service) 18 June 2009

Public deposit under Companies Act

Hello Ffriends.

can a private limited company accept public deposit?? if not, then how will unsecured loand will be treated under companies act?

please helpful reply

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5 Replies

Manish Singh (Advocate) 18 June 2009

A private co. cant accept public deposit but can accept deposits or so from their close circle or through private placement.

coming to the question of unsecured loan, there is a difference between accepting public deposit and loan/. a pvt co is not barred from taking loan from third parties and it can be very well mde secured by pledging shares or other assets of the company.

PC Agrawal (PCS) 18 June 2009

As per Sec.3(1)(iii)(d) of the Act private companies are prohibited from accepting deposits from persons other than its members, directors or their relatives. As per Explanation to Sec.58A(11) "deposit" means any deposit of money with and includes any amount borrowed by a company but shall not include categories of amount specified in Companies Acceptance of Deposits Rules 1975. As regards unsecured loans, Rule 2(b)(xi) provides for conditional exclusion as under:

any amount brought in by the promoters by way of unsecured loans in pursuance of stipulations of financial institutions subject to the fulfilment of the following conditions, namely :

(a) the loans are brought in pursuance of the stipulation imposed by the financial institutions in fulfilment of the obligation of the promoters to contribute such finance;

(b) the loans are provided by the promoters themselves and/or by their relatives, not from their friends and business associates; and

(c) the exemption under this sub-clause shall be available only till the loans of financial institutions are repaid and not thereafter.

Explanation : For the purpose of this sub-clause, the term ‘financial institution’ shall mean :

(a) a public financial institution specified in or under section 4A of the Companies Act, 1956;

(b) a State Financial, Industrial or Investment Corporation;

(c) the State Bank of India or a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959);

(d) a nationalised bank, that is to say, a corresponding new bank as defined in section 2 of :

(i) the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970); or

(ii) the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980);

(e) the General Insurance Corporation of India established in pursuance of the provisions of section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972);

(f) the Industrial Reconstruction Corporation of India; or

(g) any other institution which the Central Government may, by notification, specify in this behalf;]