Analysis on deposits & borrowing

CS Divesh Goyal , Last updated: 15 March 2017
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A. Private Limited Company: As per definition of Private limited Company as given under section 2 clause 68 of Companies Act, 2013. Private Company means a Company which by its articles prohibits any invitation to the public to subscribe for any securities of the company.

Source of receiver of Money for Private Limited Company:

The Principal Rule 2(1) (c) of Companies (Acceptance of Deposits) Rules, 2014 lists out the "exempted deposits" under the applicable provisions of the Companies Act, 2013. Let's discuss in brief here, then will discuss below:

Receiving of Money from any Company. Or;
Receiving of Money from Directors. or;
Receiving of Money from Relative of Directors. or;
Receiving of Money from State Government & Central Government. ETC.
Receiving of money from the Members subject to compliance of provision of Section 73 read with rules.

B. Public Company: There is no such restriction for the Public Company to accept deposit from the public.

Source of receiver of Money for Public Limited Company:

Receiving of Money from any Company. Or;
Receiving of Money from Directors. or;
Receiving of Money from State Government & Central Government. ETC.
Receiving of money from the public subject to compliance of provision of Section 73 read with rules.

LIST OF PERSONS TO WHOM COMPANY CAN ACCEPT LOAN -

WITHOUT FOLLOW THE PROVISION OF SECTION 73

S. No.	Loans from	Public Limited	Private Limited Company
	Director	Rule 3(1)(viii) Yes, can accept, but the director will give a Declaration in writing that money is not given out of borrowed funds and company will disclose it in the Board's report.	Rule 3(1)(viii) Yes, can accept, but the director will give a Declaration in writing that money is not given out of borrowed funds and company will disclose it in the Board's report.
	Relatives of Director	No can't Accept	Rule 3(1)(viii) [1]Yes, can accept, but the relative will give a Declaration in writing that money is not given out of borrowed funds and company will disclose it in the Board's report.
	Employee	Yes, can accept up to the employee's annual salary (there should be a contract of employment with the company) in the nature of non- interest bearing security deposit.	Yes, can accept up to the employee's annual salary (there should be a contract of employment with the company) in the nature of non- interest bearing security deposit.
	Any other Individual	Can accept after follow the compliances of Section 73 read with relevant rules	Can't accept because it is prohibited by the definition of Private Company.
	Proprietorship Firm ;	Can accept after follow the compliances of Section 73 read with relevant rules	Can't accept because it can't be director, Member or relative of Director.
	HUF	Can accept after follow the compliances of Section 73 read with relevant rules	Can't accept because it can't be director, Member or relative of Director.
	Partnership Firm	Can accept after follow the compliances of Section 73 read with relevant rules	Can't accept because it can't be director, Member or relative of Director.
	Any Company	Yes, can accept.	Yes, can accept.
	Banks	Yes, can accept.	Yes, can accept
	Trust	Yes, can accept.	Yes, can accept, but loan received should be non- interest bearing.
	Outside India	Yes, can accept.	Yes, can accept, but subject to the provisions of the Foreign Exchange Management Act, 1999 and rules and regulations made there under.
	Govt. organization (eg. SIDBI)	Yes, can accept.	Yes, can accept

FAQ's on Acceptance of Deposit and Borrowing
(Without compliance of section 73 and relevant rules):-

Types of Debentures and to whom allowed to issue or Not

S. No.	Situations of issue of Debentures	To Whom Allowed to Issue
		Director/ Company/ [2] Foreigner/ Relative of Director	Others
1.	Unsecured Non Convertible Debentures (unsecured NCD)	Allowed	Not allowed
2.	Secured Non Convertible Debenture (Secured NCD)	Allowed	Allowed
3.	Unsecured Debentures convertible into shares after 10 year before 13 years	Allowed	Not Allowed
4.	Fully secured Debenture convertible into shares after 10 years before 15 years (Secured FCD)	Allowed	Allowed
5.	Fully secured debentures convertible into shares within 10 year of issue of Debentures.	Allowed	Allowed
6.	Unsecured fully convertible Debentures (unsecured FCD)	Allowed	Allowed
7.	Unsecured optionally/Partly convertible Debentures	Allowed	Not Allowed
8.	Secured optionally/Partly convertible Debentures	Allowed	Allowed
9.	[3] Listed unsecured NCD	Allowed	Allowed

Whether Company can accept deposit from the Members?

[4] Private Limited Company Clause (a) to (e) of Section 73(2) will not be applicable on Private Limited Company if deposit is up to 100% of paid up share capital, Free Reserve and security premium account.

If Company wants to accept deposit from the members more than 100% of paid up share capital, Free Reserve and security premium account. Then Company has to follow complete section 73 read with relevant rules.

Private Limited Company No eligible company shall accept or renew- (a) any deposit from its members, if the amount of such deposit together with the amount of deposits outstanding as on the date of acceptance or renewal of such deposits from members exceeds ten per cent. of the aggregate of the paid-up share capital and free reserves of the company;

	Question	Private Limited	Public Limited (Yes= only if not required to follow Section 73)
1.	Whether LLP can give Loan to Company under this exemption	NO, LLP can't give loan to Private Limited Company under this Clause. Because this clause cover only Company not Body Corporate	No, LLP can't give loan to Company under this Clause. Because this clause covers only Company not Body Corporate.
2.	If deposit in the joint name of director and other person then how it will be treated? -	Allowed. A deposit in joint names of director and another person, who may or may not be director, should be permissible, if name of director is first depositor, though there is no specific provision.	Allowed. A deposit in joint names of director and another person, who may or may not be director, should be permissible, if name of director is first depositor, though there is no specific provision.
3.	If a person ceases or resign from the post of director after giving loan then such loan will be considered as deposits or not?	Not. Requirement of director will be check at the time of receipt of amount. Thus, later he may cease to be a director.	Not. Requirement of director will be check at the time of receipt of amount. Thus, later he may cease to be a director.
4.	Loan from HUF?	NO, HUF can't give loan to Private Limited. Because its neither Company nor relative of director.	No, HUF can't give loan to Company.
5.	Loan from HUF?	NO, Partnership Firm can't give loan to Private Limited. Because its neither Company nor relative of director.	No, Partnership Firm can't give loan to Company.
6.	Loan from Non Relatives?	Can't Accept.	Accept only after compliance of provisions of Section 73.

Disclosures in the Financial Statement

This is a new insertion in the form of Rule 16A. The following disclosure by a company in its financial statement by way of notes is now mandatory:

S. No.	To be disclosed by	Disclosure Particulars
1.	Every Company	Amount Received from Director
2.	Every Private Company	Amount Received from Relative of Director

Requirement of Obtaining Deposit Insurance

This amendment is made to rectify the inconsistency. The provisions of Section 73(2)(d) of CA 2013 read with the Principal Rule 5 provides that companies accepting deposits shall enter into a contract for providing deposit insurance in the manner stipulated therein.

However, as of now, deposit insurance product is not available. Hence, in order to plug the gap, the Amendment Rules extend the time limit for obtaining deposit insurance till 31st March, 2017 or till availability of a deposit insurance product, whichever is earlier.

Date Chart for the Dates of applicability of provisions of Borrowings and Deposits.

S. No.	Section	Provision	Section Effective	Exemption
1	179(3)	Borrow any amount of Money Need Board Resolution	01.04.2014
2	180(1)C	If borrowing more than 100% of paid up share capital + Free reserve then Need Special Resolution	12.09.2013	05.06.2015	This Section not applicable on Private limited Company from 05.06.2015
3	185	Certain Conditions where loan can't be Received	12.09.2013	05.06.2015	Exemption only when three conditions fulfilled -No Body Corporate Shareholder - Not borrowed money from Bank/ Financial Institution/ Body Corporate exceeding lower of the following:- i. Twice it's Paid up capital ii. Rs. 50 crore - No repayment default subsisting of such borrowings at time of giving loan
EXEMPTED DEPOSIT
	Source	Before 01.04.2014	After 01.04.2014 to 05.06.2015	After 01.04.2014 to 15.09.2015	After 05.06.2015
1	Members	Any No. of amount before 01.04.2014	Cant receive in this period	No Relevance	upto 100% of paid up share capital and free reserve After 29.06.2016 Upto 100% of paid up share capital, free reserve and Security Premium Account.
2	Directors	Allowed any amount	Allowed any amount Condition money must be belonging to director only. Not borrowed fund	No Relevance	Allowed any amount Condition money must be belonging to director only. Not borrowed fund
3	Relative of Directors	Allowed any amount	Not allowed	Allowed any amount Condition money must be belonging to relative only. not borrowed fund	Allowed any amount Condition money must be belonging to relative only. not borrowed fund
4	Other Company	Allowed any amount.	Allowed any amount. But check relation of section 185.	No Relevance	No Relevance

[1] The Companies (Acceptance of Deposit) second amendment Rules, 2015' dated 15th September, 2015 G.S.R. 695(E)

[2] Foreign Governments, foreign or international banks, multilateral financial institutions foreign Governments owned development financial institutions, foreign export credit agencies, foreign collaborators, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of Foreign Exchange Management Act, 1999.

[3] Companies (Acceptance of Deposits) Amendment Rules, 2016 on 29th June, 2016.

[4] Complete process is given under article series no. 148 written by CS Divesh Goyal.