Provisions of Loan from Directors under Companies Act, 2013

Provisions of Loan from Directors under Companies Act, 2013

Provisions of Loan from Directors under Companies Act, 2013: The Companies Act of 2013 discusses the various provisions for companies and the conditions, references, important dates, and other such subjects prescribed by the Ministry of Corporate Affairs.

Definition of Essential Terms Related to Companies Act 2013


When a fixed sum of money is given to another party in exchange for repayment of the aggregate with additional interest, it is known as a Loan. In other words, in general terms, any transaction where a sum of money is issued with the purpose of being reimbursed, inclusive, or exclusive of interest, is known as a Loan.


Money receipts or Loan slips placed into banks or any such institutions for the safeguarding of a particular sum of money are called Deposits. The depositor can put these amounts into savings, marketing, or checking accounts and hold the authority to manipulate the placed sum of money after consulting with the bank.

Qualified Companies

Any Public Company that has a Turnover of not lower than Rs. 500 crores and a Net Worth not lower than Rs. 100 crores. The company has to have prior approved consent of the Registrar of Companies in a general meeting through a unique filed resolution before making any requests of acceptance of deposits to the public.

The Two Main Types of Accounts

  1. Savings Account: These types of accounts are interest-bearing accounts. The rate of interest of these accounts depends on the bank at which it is deposited. Additionally, there are some restrictions in case of the number of times the user can withdraw an amount from this type of bank account.
  2. Current Account: These types of accounts are generally operated by established companies and firms and provide overdraft functions to their users. They are most commonly known as the non-interest-bearing deposits and aid in providing more efficiency to such firms or companies in the banking sphere.

Discussing Most Relevant Sections of Act

  • Under Section 179 of the Companies Act of 2013, the subject of taking consent of the Board before borrowing money.
  • Under Section 180 of the Companies Act of 2013, the subject of focus is taking consent of company members through a unique resolution in the case of borrowing money or money that is borrowed already by the company that might exceed a sum-total of its owed share of funds and inclusive of security premiums except for temporary loans that are gained from the bankers in the general course of business.

Section 180 does not apply to any Private Company; hence, Private Companies can borrow capital by passing a Board Resolution even when the limit of the borrowed amount has been reached.

Example: Suppose XYZ (Public) and ABC Private Limited both have Rs. 100 crores for Paid-up Share Capital, Rs. 50 crores for Free Reserves, Rs. 20 crores for Security Premiums, and Rs. 5 crores for Present Borrowed Amount:

By way of passing a Board Resolution, the amount to be borrowed will tally up to Rs. 175 crores for both Public and Private Companies.

Yet, if ABC Public Company wishes to borrow above Rs. 175 crores, they need to pass the Special Resolution, but for XYZ Private Limited, they can borrow above Rs. 175 crores without passing any resolutions.

Difference Between Loan and Deposit

Even though in the case of both loans and deposits, the money is lent by one party and received by the other, there is a difference.

  • Loan: A Loan is primarily associated with borrowing money for the benefit of the mortgager and according to the mutual agreement between both parties.
  • Deposit: A Deposit is associated with benefitting from additional interests, and the repayment is made on demand by following particular instructions.

Note: It is crucial to understand when a receipt is considered as a deposit and a loan and also have knowledge about who is eligible to receive it and from whom.

The Ways of Lending Money to Company by Directors

The ways through which Directors can issue Loans either from their funds or from borrowed funds to the company are listed below:

Lending from Borrowed Funds

  1. If the Director is Shareholder: The sum of money received from the director will be handled as deposits from the members and must follow the provisions under Section 73 and the laws of Section 180 of the Companies Act of 2013.
  2. If the director is not a Shareholder: The sum of money received from the director will be handled as deposits from the public and must follow provisions under Section 76 read besides the Companies Rules of 2014 (Acceptance of Deposits) and Section 180 of the Companies Act of 2013.

The deposits, in this case, can only be accepted by Eligible companies and attain a credit rating each year. For secured deposits, the company does not need to charge any favorable assets of deposit holders for amounts under the Deposit amount limit.

Lending from Own Funds

When a company accepts a said amount from the director of the company or the relative director of the company out of their private fund, it is handled as a Loan. This said amount does not require to follow any provision under the Sections 73 and Section 78 of the companies Act of 2013.

Although, to be at an advantage from this method, the director of the company or the relative director as per the case, must furnish an original declaration in written form to make this amount obtainable and to clarify that the amount is being issued out of the directors own fund through accepting or borrowing loans or any deposits from other companies.

Note: The company should disclose the details of the amount received from the director or a Board’s Report to apply the conditions of Section 180 of the Companies Act, 2013.

Additional Points to Remember

  • All Private Companies and Public Companies should reveal their financial statements in detail through notes and provide the necessary information about the amount accepted from the director or the relative directors in the case of a Private Company.
  • All companies except Government companies should file a one-time return of the outstanding receipt of the specific loan amount by the company, which does not fall under the category of deposits according to the Companies Rules of 2014 (Acceptance of Deposit). The receipt, as mentioned before, should be filed within ninety days as specified in the DPT-3 Form (mentioned as April 1st, 2014 to March 31st, 2019 in the Rules) with the additional applicable fees.
  • The Loans received from the director may be secured or unsecured.
  • The Unsecured Loans by the director do not have interests.
  • At the time of acceptance of the deposit, the board must consider the position of the director.

Example: Suppose Mr. X becomes a Director on August 25th, 2019, and is issued a loan of Rs. 100 crores to XYZ Limited on August 03rd, 2019; this will be considered a deposit.

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