Procedure for Accepting Loans under the Companies Act, 2013

The Companies Act, 2013 establishes a strict and comprehensive legal framework and structure governing how companies in India may raise funds through loans and deposits. The objective of these provisions is to protect the interests of shareholders, creditors and the public, while ensuring transparency, accountability and financial discipline in corporate borrowings. Any non compliance can result in severe penalties for both the company and its officers.

This blog will explain the procedure for accepting loans under the Companies Act, 2013, aligned with the Act, the Companies (Acceptance of Deposits) Rules, 2014 and current MCA compliance practices.

Understanding Loans and Deposits

Under Section 2(31) of the Companies Act, 2013, the term deposit includes any receipt of money by way of deposit or loan or in any other form. However, Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 provides an exhaustive list of amounts that are specifically excluded from the definition of deposits.

Therefore, every loan received by a company must first be examined to determine whether it is: -

• A deposit, or
• An amount not treated as a deposit due to a statutory exemption.

Only after this classification can the applicable compliance requirements be determined.

Key Legal Provisions Governing Acceptance of Loans

The primary provisions regulating acceptance of loans and deposits are: -

• Section 73 – Prohibition on the acceptance of deposits from the public
• Section 74 – Repayment of deposits accepted before commencement of the Act
• Section 76 – Acceptance of deposits by eligible public companies
• Section 179(3) – Powers of the Board to borrow money
• Section 180(1)(c) – Restrictions on borrowing powers of the Board
• Section 186 – Loans and investments by companies
• Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 – Amounts not considered deposits

Amounts Not Treated as Deposits (Rule 2(1)(c))

Some of the most relevant exclusions include:

• Loans from banking companies, NBFCs, public financial institutions or insurance companies
• Loans from another company (inter corporate loans)
• Loans from directors (or relatives of directors in private companies) out of their own funds, supported by a written declaration
• Share application money pending allotment (subject to conditions)
• Amounts received from employees as security deposits

If a receipt of money falls under any of these exclusions, it is not treated as a deposit, though other provisions of the Act may still apply.

Types of Loans and Applicable Compliance

1. Loans from Directors

Loans received from directors are not treated as deposits provided the following conditions are met: -

• The director furnishes a written declaration stating that the amount is given out of his/her own funds and not from borrowed money
• The declaration is obtained at the time of receipt of the loan

Procedure: -

• Obtain written declaration from the director
• Pass a Board Resolution under Section 179(3)
• Execute loan agreement (if applicable)
• Proper and accurate disclosure in the financial statements
• Report the outstanding amounts in Form DPT 3

2. Loans from Members (Shareholders)

Money received from members is generally treated as a deposit, unless specifically exempted.

• Private companies may accept deposits from members subject to Section 73 and applicable exemptions
• Such receipts require compliance with deposit provisions, unless covered under private company exemptions notified by the MCA

Procedure (where treated as deposit): -

• Pass Board Resolution
• Pass Special Resolution in General Meeting
• Issue circular to members
• Maintain deposit repayment reserve account
• File Form MGT 14, Form DPT 1 and Form DPT 3

3. Loans from Banks and Financial Institutions

Loans from banks, NBFCs and financial institutions are excluded from the definition of deposits.

Procedure: -

• Pass Board Resolution under Section 179(3)
• Execute loan and security documents
• If total borrowings exceed limits under Section 180(1)(c), obtain shareholders’ approval by Special Resolution
• File Form MGT 14 for the special resolution (if applicable)
• Register charge in Form CHG 1

4. Loans from Body Corporates (Inter Corporate Loans)

Loans received from another company are excluded from deposit provisions but remain subject to borrowing limits.

Procedure: -

• Pass Board Resolution
• Check borrowing limits under Section 180(1)(c)
• Execute inter corporate loan agreement
• Ensure compliance with Section 186, if applicable
• Make necessary disclosures in financial statements

5. Deposits from Public (Eligible Public Companies Only)

Only eligible public companies meeting prescribed net worth or turnover criteria may accept deposits from the public under Section 76.

Procedure: -

• Pass Board Resolution and Special Resolution
• Obtain credit rating
• Issue circular and publish advertisement
• Create deposit repayment reserve
• File Form DPT 1 and Form DPT 3
• Comply with deposit insurance and ongoing reporting requirements

Step by Step Procedure for Accepting Loans

Step 1: Identify the Nature of Receipt

Determine whether the amount received is: -

• A deposit, or
• An amount not treated as a deposit under Rule 2(1)(c)

Step 2: Check Borrowing Limits

Under Section 180(1)(c), if total borrowings exceed:

• Paid up share capital + free reserves + securities premium
• Shareholders’ approval by Special Resolution is mandatory.

Step 3: Convene Board Meeting

• Approve acceptance of loan
• Authorise execution of documents
• Approve convening of General Meeting, if required

Step 4: Obtain Shareholders’ Approval (If required)

• Issue notice of the General Meeting
• Pass Special Resolution
• File Form MGT 14 within the period of 30 days

Step 5: Execute Loan Documentation

• Execute a loan agreement
• Create a charge, if applicable
• File Form CHG 1 within the prescribed time

Step 6: Statutory Filings and Disclosures

• File Form DPT 3 (annual return of deposits and exempted loans)
• Maintain statutory registers
• Disclose details in financial statements

Penalties for Non Compliance

Non compliance with Sections 73 to 76 may result in: -

• Fine on the company ranging from ₹1 crore or twice the amount of deposit (whichever is lower) up to ₹10 crore
• Officers in case of default may face imprisonment up to 7 years and/or fine
• Prohibition on accepting further deposits

Key Differences Between Loans and Deposits

Conclusion

Acceptance of loans under the Companies Act, 2013 is not merely a financial decision, but it is a structured exercise in strict legal compliance. Every receipt of money must be carefully examined to determine whether it qualifies as a deposit or an exempted loan. Proper approvals, documentation, statutory filings and disclosures are essential to ensure the validity of borrowings and to protect the directors from various personal liability. If you need any professional help, do contact to Remind Legal, our experts will assist you.

Given the complexities of the law and the serious legal penalties for non compliance, companies should seek professional legal or secretarial guidance to ensure seamless compliance with the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014.