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ACCEPTANCE OF DEPOSIT

Section 73 to 76 Simplified

The companies Act 2013 by way of Section 73 to 76 has bought many changes in respect of Acceptance of deposits by company and the changes are applicable are on Private Limited Companies also.

To understand the ambit of Section 73 to 76 we first need to know the definition of Deposits under old Companies Act wiz a wiz to new Companies Act,2013.

Meaning of Deposit As per Companies Act 1956

a. As per explanation to Section 58A “deposit means any deposit of money with, and includes any amount borrowed by, a company but shall not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

b. Such exempted categories prescribed by the Central government in consultation with RBI (through Companies (Acceptance of Deposit Rules), 1975) are as follows:

i. Amounts Received from the Government/Foreign Sources

ii. Loans from Banking company/Financial Institution

iii. Inter company deposits

iv. Amount Received from Employee by way of Security Deposit

v. Amount Received from Agents

vi. Advances against Orders (for supply of goods etc.)

vii. Subscriptions to Securities

viii. Calls in Advance of Shares

ix. Trust Moneys

x. Amount Received from Directors or his relative

xi. Amount Received from Members (only in case of Private co.)

xii. Secured Bonds or Debentures

xiii. Convertible Bonds or Debentures

xiv. Promoters Unsecured Loans pursuant to stipulations laid down by the financial institutions for granting the loan.

Also, section 3 (1)(iii) of the Companies Act, 1956 prohibits a private company from the inviting and accepting any DEPOSIT from person other than its members, directors or their relatives.

DEFINITION OF DEPOSIT UNDER COMPANIES ACT 2013

In addition of above following has been included in the definition of Deposits

1) Any amount received against subscription to any securities including share application money provided the securities are allotted within 60 days from the date of receipt of the application money or advance.

If the securities are not allotted within 60 days then the same should be refunded within 15 days else the same shall be treated as deposit after completion of 15 days.

2) Any amount received from Director of the company provided the Director furnishes a declaration that the amount given is not out of borrowed funds.

3)  Any amount received from an employee of the company not exceeding his annual salary in the nature of non interest bearing security.

4)  Any amount received in the course of or the purpose of the business for the following:-

a. As advance for the supply of goods or provision of services provided such advance is appropriated against supply of goods or provision of service within 365 days from the receipt of such amount,

b. As advance received in connection with consideration for property under an agreement or arrangement,

c. As security deposit for the performance of the contract for supply of goods or provision of services.

d. As advance received under long term projects for supply of capital goods.

If any amount received under clause (a),(b) and (d) becomes refundable due to the reasons that the company accepting money does not have necessary permission or approval to deal with the goods or services then the amount received shall be deemed to be a deposit after the expiry of 15 days from the date they become due for refund.

5)  Any amount accepted by a Nidhi Company in accordance with rules made u/s 406 of the Act.

LET Us Understand the Concept of Acceptance of Deposits under Companies Act 2013 with the help of 2 practical examples:

EXAMPLE 1

ABC Private Ltd has a Share Capital of Rs 10 Crore and it wishes to raise another Rs 10 Crore by the following means:-

• 5 Crore from Government Agency, Financial institutions, Banks or by way of Commercial Paper.

• 50 Lakhs by way of Share Application.

• 50 Lakhs from Director by way of Loan.

• 50 Lakhs from issue of bonds and debentures.

• 50 Lakhs from ICD.

• 25 Lakhs from Employees.

• 50 Lakhs as business advance from customer.

• 50 Lakhs as Advance against property Sale.

• 25 Lakhs as security deposit.

• 50 Lakhs from promoter or Relative.

• 50 Lakhs from relative of a Director.

• 50 Lakhs from a shareholder.

ABC Private Limited has sought your advice on the above means of finance.

ANSWER 1

5 Crore from Government Agency, Financial institutions, Banks or by way of Commercial Paper.

The amount received or borrowed from any government agency or FI or Bank or by way of CI is not covered under deposits.

Hence, company can raise money by way of above.

50 Lakhs by way of Share Application.

Company can raise money by way of issue of share if

a. Section 42 compliance i.e. Private Placement.

b. Allotment of share within 60 days of receipt of amount.

c, If not allotted then termed as deposit.

50 Lakhs from Director by way of Loan.

Company can receive a loan from a Director provided

Director gives an undertaking to the company that the loan given is from own funds and not from borrowed money.

NOTE:  Suppose if Director Net Worth is Rs 10 Crore and he has taken a loan for Rs 4 Crore then he is eligible to give loan to a company up to Rs 6 Crore.

50 Lakhs from issue of bonds and debentures.

Company can raise money by way of bonds and debentures provided

Provided

a. Amount is secured by a first charge against property; OR

b. Such bonds or debentures should be compulsorily convertible into shares within 5 years.

50 Lakhs from ICD.

Inter corporate deposits are not covered in the definition of deposits, hence company can use ICD as a means of finance.

25 Lakhs from Employees.

Yes, can be raised from employees provided amount received from employee doesn’t exceed by his total annual salary.

50 Lakhs as business advance from customer.

Yes, amount can be raised from customer however, such advance should be adjusted with 365 days from the date of receipt of advance.

50 Lakhs as Advance against property.

Yes it can be raised, however such amount should be adjusted against the property only.

25 Lakhs as security deposit.

Yes, as security deposits are out of the ambit of definition of deposits.

However, it is advised to receive security deposit under a specific agreement.

Eg:- Security deposit against rent, security deposit against supply of material or fulfillment of service.

50 Lakhs from promoter or Relative.

No, but if any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank subject to fulfillment of the following conditions, namely:-

(a) the loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance;

(b) the loan is provided by the promoters themselves or by their relatives or by both; and

(c) the exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter;

50 Lakhs from a shareholder.

No, Company cannot raise an amount from shareholders.

EXAMPLE 2

On 1st April 2014, following loans are standing outstanding in the books of M/s ABC Pvt Ltd. The board has sought your advice regarding the treatment of them.

1. Rs 1 Crore from Director.

2. Rs 50 Lac from shareholder.

3. Rs 50 Lac from relative of a Director

4. Rs 50 Lac as a business Advance.

5. Rs 2 Crore as advance against property.

6. Rs 1 Crore as share application money.

7. Rs 2 Crore as ICD

8. Rs 1 Crore from unknown sources or non relatives.

SOLUTION 2

The Companies Act 2013, states that in case any Deposit is outstanding in the books of accounts of company then same has to be reported to the ROC by 30th June 2014 and has to be repaid by 31st March 2015.

Here, the deposits are to be checked under the definition of Deposits as defined under Companies Act 1956 instead of Companies Act 2013.

We Will take each case separately Now:

Rs 1 Crore from Director.

Any amount received from a Director is not a Deposit hence it need not be reported and can continue to stay in books. The loan can be renewed on the expiry of term, if there is no term then it is advisable to make a tenure for same.

Rs 50 Lac from shareholder.

Amount received from shareholders was not covered in the definition of deposits under old Act; hence the same is not required to be reported.

However, Loan from shareholders cannot be renewed and has to be repaid back on expiry of term. If there is no term than a term contract should be made now.

Rs 50 Lac from relative of a Director

Again as per old definition loan from relatives of Director were out of the ambit of the definition of Deposits, Hence no reporting required however same cannot be renewed and has to be repaid back on expiry of term. If there is no term than a term contract should be made now.

Rs 50 Lac as a business Advance.

Business Advance is excluded from the deposits, hence there is no need to report the same and the amount can continue to appear in books.

The 365 days condition is not applicable here. However genuineness of the transaction is to be checked. It should be checked whether there are any transaction happening between the parties.

If not, then it is advisable to refund the amount.

Rs 2 Crore as advance against property.

Same as above it is not a deposit, hence no reporting necessary.

Rs 1 Crore as share application money.

Share Application money is not a deposit; hence there is no need to report the same.

However, all the pending application money appearing in books of Accounts should either be allotted or refunded back to the subscribers. As in many cases share application money is standing outstanding since many years and as per rules outstanding share application money should be deposited in Investor Protection Fund Account.

So it is advised either to refund or allot the amount in current financial year.

Rs 2 Crore as ICD

ICD are exempt from the definitions of Old as well as New Companies Act, hence company can freely accept ICD.

Rs 1 Crore from unknown sources or non relatives.

We must have faced a situation under some amount is outstanding in books of accounts, however the company is unable to ascertain to whom that amount belong to.

Such amount received or unexplained money or money standing in books from non relatives needs to be reported to ROC by 30th June 2014, as they get covered under the definition of Companies Act. The said amount is to be repaid by 31st March 2015. 

I hope all the practical queries are being covered up by these examples.

However if you still have any specific query please ask the same.

CA Gaurav Mittal

Partner

Singal & Company

Email: mittalgaurav05@gmail.com

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Category Corporate Law, Other Articles by - CA Gaurav Mittal 



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