The Companies (Acceptance of Deposits) Rules, 1975 allowed private companies to borrow any loan or to accept deposits from directors, shareholders and relatives of directors. However, the Companies Act, 2013 restricted private companies from accepting deposits from relative of directors. Now, MCA has made an amendment to the Companies (Acceptance of Deposits) Rules, 2014 (‘Deposit Rules’). Amendments have been made to allow private companies to accept deposits from relative of its directors subject to condition that:
The relative of the director of the private company 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 funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board's report
Loans forms major source of financial support for most of the Companies apart from the Share Capital. Generally, private companies borrow from banks and financial institutions as they are prohibited from accepting public deposits. For funding, the Private Companies rely heavily on their internal sources such as, shareholders, directors, relatives of directors. Such a move by MCA allowing Private companies to accept deposits from relatives of its Directors is a welcome measure.
It was much awaited relief for Private Companies who were starving of funds due to the restrictive provision.