A private company can receive money from a director, and the deposit rules also create a specific route for money received from a director’s relative. But the accounting label “director loan” is not enough. The exclusion depends on who gives the money, that person’s status when the company receives it, the source of the funds and the required declaration and disclosure.
The distinction matters because Chapter V of the Companies Act, 2013 regulates acceptance of deposits. Section 73 sets the statutory framework, while the Companies (Acceptance of Deposits) Rules, 2014 define several receipts that are not treated as “deposits” when their conditions are satisfied.
The director route and the relative route are not identical
Rule 2(1)(c)(viii) excludes an amount received from a person who, at the time the company receives the money, is a director of the company. The same clause also covers an amount received from a relative of a director of a private company. That second limb is important: the wording specifically attaches the relative-of-director exclusion to a private company.
This means the first check is factual, not accounting-based. Confirm who actually transferred the money and what that person’s legal status was on the receipt date. A later appointment as director does not change who the lender was when the amount was received. Likewise, calling a balance “loan from director” in the ledger cannot create the exclusion if the person did not meet the rule at that time.
The word relative also has a statutory meaning. Section 2(77) of the Act includes members of a Hindu Undivided Family, husband and wife, and other relationships prescribed under the rules. Do not treat every family connection as a qualifying relative merely because the parties use that description informally.
The written declaration is part of the exclusion, not optional paperwork
The director or qualifying relative must give the company a written declaration at the time of giving the money. The declaration must state that the amount is not being given out of funds acquired by that person by borrowing or by accepting loans or deposits from others.
This source-of-funds condition is easy to miss. Consider a hypothetical case in which a director transfers ₹10 lakh from personal savings to the company and gives the required declaration. The company can then examine the receipt under the director exclusion. If, instead, the director has borrowed ₹10 lakh from another person specifically to pass it to the company, the required declaration cannot truthfully be made on those facts. The company should not simply retain the “non-deposit” label; it should test the receipt under the wider deposit framework before accepting or continuing with that funding structure.
The rule also requires the company to disclose details of money accepted under this route in the Board’s report. The declaration and Board-report disclosure therefore serve different purposes: one supports the source-of-funds condition at receipt, while the other records the company’s acceptance of the money in its statutory reporting.
Borrowing approval is a separate company-law step
Even when the receipt is outside the definition of deposit, it is still a borrowing by the company. Section 179(3)(d) of the Companies Act says the Board’s power to borrow monies is exercised through a resolution passed at a Board meeting. The provision also permits specified delegation of that borrowing power by Board resolution, subject to the conditions the Board sets.
That is why a clean file should separate two questions:
- Deposit classification: does Rule 2(1)(c)(viii) exclude this receipt from the definition of deposit, and are its conditions satisfied?
- Borrowing authority: has the company followed the applicable Board approval and internal-authority process for taking the borrowing?
One question does not replace the other. A valid source-of-funds declaration does not itself approve the borrowing, and a Board resolution does not by itself make an otherwise ineligible receipt a non-deposit.
DPT-3 can still matter even when the money is not a deposit
“Not a deposit” does not automatically mean “nothing to report”. The DPT-3 framework covers deposits as well as specified outstanding receipts of money or loans that are not considered deposits under Rule 2(1)(c). If a director or relative balance remains outstanding at the reporting date, the company should classify it correctly and test the current DPT-3 reporting requirement instead of excluding it merely because the Rule 2 conditions are met.
The practical sequence is explained in the separate DPT-3 guide for deposits and non-deposit amounts. For this funding route, the useful control is to keep the lender status, original receipt date, declaration, Board approval, repayments and year-end outstanding balance together in one reconciliation file.
Do not confuse money coming from a director with a company loan going to a director
The direction of the money changes the legal question. This article deals with money received by the company from a director or a qualifying relative. Sections 185 and 186 become central in a different situation—where the company proposes to give a loan, guarantee or security, including director-connected cases.
If the company is paying money out rather than borrowing it, use the separate analysis of Sections 185 and 186 for loans, guarantees and investments. Treating the two directions as the same transaction can lead to the wrong approval and compliance checklist.
A practical pre-receipt check
Before the company accepts the money, finance and secretarial teams should be able to answer these points from documents, not assumptions:
- Who is transferring the money, and is that person a director or a qualifying relative on the actual receipt date?
- If the lender is a relative, is the recipient company a private company and does the relationship fall within the statutory definition?
- Can the lender truthfully give the required written declaration that the money is not sourced from borrowing, loans or deposits taken from others?
- Has the company completed the appropriate Board borrowing approval under its governance process?
- Is the declaration retained with the bank trail and loan terms so the classification can be supported later?
- Has the company planned the Board’s report disclosure and the year-end DPT-3 classification if the balance remains outstanding?
The safest way to use this route is therefore not to start with the ledger label. Start with the identity and status of the person giving the money, verify the source-of-funds declaration at receipt, complete the company’s borrowing approval, preserve the evidence and carry the same classification through the Board’s report and DPT-3 review. If any of those facts do not fit the exclusion, re-test the receipt under the deposit rules instead of assuming that every amount connected with a director is automatically outside the deposit framework.
