URGENT: Deposits or Borrowed fund taken in a Private Company

[shilpa kasliwal]

Dear All,

As per Companies (Acceptance of Deposits) Rules, 1975 Deposit means , any deposit of money with and includes any mount borrowed by a company, but does not include :

(ix) any amount received by a private Company from a person who, at the time of the receipt of the amount, was a DIRECTOR, RELATIVE OF DIRECTOR OR MEMBER:

Provided that the Director or member , as the case may be , from whom money is received , furnishes to the Company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of fund acquired by him by borrowing or accepting from others.

My Company is a PRIVATE LIMITED COMPANY and my Queries are as follows:

1. What does DECLARATION means..its a simple declaration to be given by Directors/members or its like an affidavit which attracts stamping.

2. EFFECT ON COMPANY: If such declaration is not received by a company what are the consequences, will it be treated as DEPOSIT and company will be liable to pay full amount penalty if not follow the process of 58A of the Companies Act, 1956  .....read with Section 3(i) (iii) of Companies Act, 1956 

3.EFFECT ON DIRECTOR/RELATIVES: If  Directors has given such funds to Company out of his BANK OD or some other borrowed funds.

I have studied some where that Directors are liable for civil court penalties.

4. EFFECT ON MEMBERS: If Members has given such funds to Company out of his BANK OD or some other borrowed funds.

5. Will this provision will applicable for any deposit or borrowed fund at any point of time during the year or only at the time of end of financial year i.e.31.03.2012.

Please resolve my query as the proviso is simple but the penalty is very heavy i.e. equal amount of such receipt.

With Best Regards,

Shilpa 

[kameswara Rao Kappagantula]

If u r taken Deposits fropm Directors then the same is expempted.

 

The Declaration is necessary which clearly mention that the funds are lened to Company are fromn his own osurces.

 

Simnple Letter is enough and the same not require any stampting.

 

If the funds are lent from OD accounts, which is a borrowing made by the lender, is violation.

 

Please note that even if the Lender not given a Declaration but the when something arises then if he can show that the same is from his own sources then it is ok.... may be penalties levies for non-complianc eof this.

 

Kamesh

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[Ahmadur Rashid]

Dear Silpa,

 

Pl find the draft declaration as per your requirement.

 

Regards

Rashid

[shilpa kasliwal]

Thanks Mr. Kamesh.

I am sharing something related one of the possible consequences on wrong declaration by  director, relative of director or member, as the case may be

A WRONG DECLARATION MAY ATTRACT SECTION 68 OF I.T.ACT:

Suppose, by mistake a declaration as to own fund has been made by the director, relative of director or member, as the case may be then such declaration may go against the assessee and the borrowing may be deemed as income- For instance in case the Assessing Officer of the director, relative or member as the case may be, comes to know that a declaration as to  'own fund' has been given to the company or the company has not treated the amount as public deposit, leading to an inference of own fund, or he obtain copy of declaration and then on scrutiny of books of account he find that the money has been given out of borrowed funds by the director, relative or member. The A.O. may draw the conclusion that the amount of deposit is out of undisclosed income of the declarant and therefore the borrowings shown in his books of account are bogus or the lenders are just name lenders and therefore he may treat the amount of those borrowings as undisclosed cash credit and treat the same as income u/s 68 of the Income tax act, 1961 because the assessee himself has admitted or declared that he made deposit out of  'own fund.

Besides such addition u/s68 of the Income tax act, 1961 the exempted deposit shall no longer be an exempted one, but will be treated as public deposit. Therefore, the purpose of declaration will fail, and may lead to violation of deposit Rules and the declarant, the company, and any officer including director may be liable to penalty and prosecution under The Companies Act, read with relevant rules for making false declaration, violating deposit rules etc

Hope it will useful for all.

With Regards,

Shilpa

[shilpa kasliwal]

Thanks Mr. Rashid,

plz explain which information Company has to furnish to  director, relative of director or member, as the case may be regarding Companies (Acceptance of Deposits Rules, 1975)

With Regards

Shilpa

[kameswara Rao Kappagantula]

Shilpa

 

WHat u shares is correct as per IT Act,

 

But see matter as u mentioned comes whern there is IT proceedings against the Company...else u every thing make back side i mean u can prepre the such declarations and keep in file.

 

Once the Director given declaration and Company ceepted the amount then it gives a receipt the amount of and name of the person from whom it taken and the terms and conditions. ettc...

 

Kamesh

[shilpa kasliwal]

I agree.but for Director and his relative it can create problem to give fund out of borrowed funds..........

Mr. kamesh I have a doubt regarding declaration can be on simple paper and no stamping is required.

Can you share some mater in the regard.As its no where clear that it should be stamped or not...as per Rajasthan Stamp act different stamp duty is levied for different declarations in various conditions.

Plz throw some light.

[ramela rangasamy]

Thank you Ms.Shilpa Kasliwal,

What you have stated is correct. 

I have some clarification on the same.

- But if you see the provisions of Companies Act, 1956, it prohibits any invitation or acceptance of deposits from person other than its members, directors or their relatives.

- As per Companies (Acceptance of Deposits ) Rules, 1975, declaration is required to be obtained from Director (in case of both public and private) and relative of director or member by private company.

So for Private Company, can mobilize funds only from their Director/member or their relatives and that too only from their own fund.

In case they need more funds, what can they do? Did it mean they has to close the Business.

Secured loan can be availed but based on only some securities. Therefore it is limited based on the securities offered.

So promoters generate funds by mortgaging their own property and generate funds. How to bring this amount into the business? Is there any option from them to generate funds?

Members views also solicited.

R.Ramela

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[kameswara Rao Kappagantula]

Dear Shilpa

 

There is stamping on such declaration. am sure of it.

 

It is just saying that fund lending to company is not from browwed sources.

 

As a Matter of security u should have declaration on plani paer and there is no format and not require any stamping.

 

Am calling it as Corporate Governance what u r complying once the things had done...means Company already availed from Directors and no declaration at thT TIME  WE AS A pROFESSIONALS DOING IT NOW...LIKE THESE THINGS ARE CORPORATE GOVERNANCE.

 

kAMESH