Deposits

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Viral Mehta (Querist)
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17 December 2012 Hello Experts,

Can a public company accept the deposits from a Director who is ALSO A SHAREHOLDER of the company?

If not, how can it rectify the default?

Ajay Mishra

Ajay Mishra (Expert)
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18 December 2012 Hi

If a public company accept deposit from director then it will not be treated as deposit.

Money received from shareholders:

Rule 2(b)(ix) exempts any amount received by a company from its shareholder from the definition of deposits. The shareholder shall furnish a statement to the company at the time of bringing in the money that the money has not been borrowed or accepted by him from other sources, to make deposit with the company.

Ajay Mishra

Ajay Mishra (Expert)
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18 December 2012
Comparison of money received from a director and money received from shareholders:

The money received from a director continues to be treated as exempted deposit when the person from whom money has been received ceases to be a director of the company. But, the case is not same in case of a shareholder. If a shareholder from whom company has received any money ceases to be a member of the company, the exemption ceases and, thus, the amount received from him will be considered as deposit within the meaning of section 58A.

Ajay Mishra

Ajay Mishra (Expert)
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18 December 2012
Limit of amount for acceptance of deposits
As per rule 3(2) a company may accept deposits from the public upto the following limits subject to fulfillment of the conditions of the Companies (Acceptance of Deposit) Rules, 1975:—
(a) upto 10% of its paid-up capital and free reserves from its shareholders (other than a shareholder in a private company). These deposits may also include any deposit from any person guaranteed by a director of the company or against unsecured debenture issued by a company;
(b) upto 25% of the paid-up capital and free reserves of the company from public.

Viral Mehta

Viral Mehta (Querist)
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18 December 2012 Thanks sir. However, if a Company has accepted the deposit from Director unknowingly then how can it save itself from violation?

Viral Mehta

Viral Mehta (Querist)
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18 December 2012 In above, please read as the Director who is also a shareholder.

Ajay Mishra

Ajay Mishra (Expert)
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18 December 2012 Hi

Yes, you can received unsecured loan and it will not be treated as deposit in case of public company also.

Ajay Mishra

Ajay Mishra (Expert)
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18 December 2012
Rule 2(B) (ix) of the the Companies (Acceptance of Deposits) Rule, 1975 is defind as follow:

“Any amount received by a private company from a person who at the time of the receipt of the amount, was a director, relative of director or member.”

In exercise of the powers conferred by Section 58A read with sub-clauses (a) and (b) of Sub-section (1) of Section 642 of the Companies Act, 1956 (1 of 1956), the Central Government, in consultation with the Reserve Bank of India, hereby makes the following rules further to amend the Companies (Acceptance of Deposits) Rules, 1975, namely:-

1 . Companies (Acceptance of Deposits) Amendment Rules, 2004.-

1.Short Title and Commencement - (1) These rules may be called the Companies (Acceptance of Deposits) Amendment Rules, 2004.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In rule 2 of the Companies (Acceptance of Deposits) Rules, 1975, in clause (b), for sub-clause (ix), the following sub-clause shall be substituted, namely:-

" (ix) any amount received from a person who, at the time of the receipt of the amount, was a director of the company or any amount received from a relative of a director or its member by a private company :

Provided that the director, relative of a director or member, 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 from others".

After this amendments in this rule as on 12/03/2004 the public company can take money from its director because the word private company has been replace in this sub clause by the word “ the Company”.

Viral Mehta

Viral Mehta (Querist)
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18 December 2012 Ok. So, accepting money from a Director irrespective of him being a shareholder is well within the provisions of law.

Thanks for the enlightenment sir. Have a good day ahead...

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