INTERPRETATION ON DEPOSITS

INTERPRETATION ON DEPOSITS

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INTERPRETATION ON DEPOSITS
INTERPRETATION ON DEPOSITS

INTRODUCTION

Deposits have been defined under the Companies Act, 2013 (“2013 Act“) to include any receipt of money by way of deposit or loan or in any other form by a company. However deposits do not include such categories of amounts as may be prescribed in consultation with the Reserve Bank of India (“RBI“). Chapter V of the 2013 Act and the Companies (Acceptance of Deposits) Rules, 2014 as amended from time to time (“Deposits Rules“) primarily cover regulations relating to deposits. The Deposits Rules provide an exhaustive definition of deposits which is exclusionary in nature and exclude certain amounts received by a company, from the ambit of deposits. It may also be noted that the Companies Act, 1956 (“1956 Act“) and the Companies (Acceptance of Deposits) Rules, 1975 also defined deposits in a similar manner and excluded certain amounts which were not to be considered deposits.

The dilemma is that some of the exclusions introduced under the Deposits Rules lack clarity. At times these exclusions are contradictory to related provisions under the Deposits Rules.

Deposits has been an important source of funding for the corporates in India. Under the Companies Act, 1956 regime, provisions related to deposits was less stringent as compared to under its successor.

Companies Act, 2013, initially laid down a kind of prohibition for acceptance of deposit which was later relaxed through various amendments and providing crucial exemptions to private companies. Private Companies can now accept deposits from its member with minimum regulatory compliances.

Before moving towards the regulatory requirements for accepting deposits by the Company, it must be clear what is Deposit and what are excluded from the ambit of deposit or not termed as deposit.

Definition of Deposit:

Deposit has been defined under Section 2(31) of the Companies Act, 2013 further expanded under the Deposit Rules, 2014.

As per Section 2(31),  “deposit” includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

Accordingly, Rule 2(1)(c) of Companies (Acceptance of Deposit) Rules, 2014excludes the following amount received by a Company from the ambit of Deposit and shall not be considered as deposits –

  1. any amount received from the Central Government or a State Government or local authority or statutory authority, or any amount Whose repayment is guaranteed by the Central Government or a State Government;
  2. any amount received from foreign Governments, foreign or international banks, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India;
  3. Loans or facility from banks;
  4. Loans from Public Financial Institutions/ Insurance Companies;
  5. any amount received against issue of commercial paper or any other instruments;
  6. any amount received by a company from any other company;
  7. Any amount received through Public offer. However, if securities not allotted within 60 days and refund not made within 15 days then such amount will be treated as Deposit;
  8. Any amount received from the director of the company and in case of private company also from the relative of the director of the company subject to the condition that the amount has been given from own’s fund and not from borrowings.
  9. Any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge, compulsorily convertible within 10 years;
  10. Any amount raised by issue of Unsecured Non-convertible debentures;
  11. Non-interest-bearing security deposit from employee of the company under the contract of employment to the extent not exceeding his annual salary;
  12. Any non-interest bearing amount received and held in trust;
  13. Any amount received in the course of business –
  • As advance for supply of good or services provided that such goods or services are supplied within 365 days of the receipt of advance;
  • As advance in connection with consideration for an immovable property provided such advance is adjusted against such property in accordance with the terms of the agreement;
  • As security deposit for the performance of the contract;
  • As advance under long term projects for supply of capital goods;
  • Provided that if the amount received under (a), (b) & (d) becomes refundable due to lack of necessary permission or approval to deal in the concerned goods or services, then the amount received shall be deemed as deposit on the expiry of 15 days from the date they become due for refund.
  • As advance towards consideration for future warranty or maintenance contract;
  • As advance received which is allowed by any sectoral regulator;
  • As advance for subscription towards publication;
  1. Any amount of unsecured loan brought in by the promoters subject to the fulfilment of the following conditions:
  • the loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance;
  • the loan is provided by the promoters themselves or by their relatives or by both; and
  • the exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter;
  • Any amount accepted by a Nidhi Company;
  1. Any amount received by way of subscription in respect of a chit under the Chit Fund Act, 1982;
  2. Any amount received by the company under any collective investment scheme;
  3. An amount of 25 lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person;
  4. Any amount received by a company from registered Alternate Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts and Mutual Funds.

Interpretation on  Deposits  from Member, Director & Relative of Directors of Private Company 

As per Rule 2 (1) (c) (viii) of Companies (Acceptance of Deposits) Rules, 2014 –

“Deposit” does not include any amount received from a person who, at the time of the receipt of the amount, was a director of the company or a relative of the director of the Private Company:

Provided that the director of the company or relative of the director of the private company, 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 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;

Simplified Interpretation: –

  • Amount received (i.e. Loan) from director of the company (whether public or private) is NOT “Deposit”.
  • Amount received (i.e. Loan) from RELATIVE of director of the PRIVATE COMPANY is NOT “Deposit”.

Therefore, in case of public company, amount received from relative of director of the public company is considered as “Deposit”.

 

Ceiling Limit of Deposit – in case of PRIVATE COMPANIES

Situation 1: –

According to First Proviso to Rule 3 (3) of Companies (Acceptance of Deposits) Rules, 2014: –

Not exceeding 100% of aggregate of paid up capital, free reserves and securities premium;

Such company shall file the details of monies so accepted to the ROC in e-Form DPT-3.

Situation 2: –

According to Second Proviso to Rule 3 (3) of Companies (Acceptance of Deposits) Rules, 2014: –

Following class of PRIVATE COMPANIES can accept deposit exceeding 100% of aggregate of paid up capital, free reserves and securities premium (i.e. no maximum limit of acceptance of deposit) –

  1. A Private Company which is a start-up, for five years from the date of its incorporation;
  2. A Private Company which fulfils all of the following conditions, namely:-
  • Which is not associate or a subsidiary company of any other company;
  • The borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up capital or Rs. 50 Crore, whichever is less.
  • Such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under section 73

Such company shall file the details of monies so accepted to the ROC in e-Form DPT-3.

Return of Deposits to be filed annually with ROC: – Rule 16

Every company to which Companies (Acceptance of Deposits) Rules, 2014 apply, shall on or before the 30th June, of every year, file with the ROC, a return in e-Form DPT-3 and furnish the information contained therein as on the 31st March of that year duly audited by the auditor of the company.

Author: This article is written by CS. Yogesh Gupta.

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