Short Summary:
In this spark editorial, the author begins by referring the provisions of section 73 of Companies Act, 2013 relating to Acceptance of Deposit by Companies. Author shall Shed Some Light on sources of permissible deposits, limits of deposits, provisions of deposits, compliances for acceptance of such deposits etc. The main thrust of the article, however, is upon the “Private Companies” along with discussion of circulars, notifications, amendments made by MCA.
This editorial is updated version of editorial NO. 282 titled “Acceptance of Deposit by Private Limited Companies”. Since many amendments made by the MCA till 30th January, 2019. These documents incorporated all major amendments to Deposit Rules.
This editorial would assist in understanding the provisions, requirement of acceptance / renewing of deposit under CA, 2013.
Introduction:
At the time when Company Act, 2013 introduced sources to accept deposit by Private Companies was hardly any (like: Directors, Inter Corporate Deposits, Banks and Financial Institutions). On the other hand, Private Company by and large are family concerns only. There was need for amendment in the Law by grant relaxation to Private Companies to accept Loan from the other Stake Holders or Relatives as there are no public interest indulges in the Private Companies.
Quick Bites:
What shall be the treatment of the Deposit accept by the Private Companies before 01.04.2014 which was allowed in Act, 1956 but not allowed in Act, 2013.
MCA has issued a Circular No. 05/2015 dated: 30th March, 2015 and clarified that “such amount shall not be treated as deposit subject to the condition that relevant such private company shall disclose about the same in Notes to its Financial Statement”.
Whether Section 73 applicable on NBFC Companies and Banking Companies?
For acceptance or renew of Deposits under Companies Act from the Public in NBFC are not required to follow Section 73 and rules of Deposit don’t applicable on NBFC.
Detailed article published on my blog as Series No. 419.
Meaning of Deposit:
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.
Private Limited Companies
A.ACCEPTANCE OF DEPOSIT FROM DIRECTOR: As per Chapter V, Acceptance of Deposits of Companies Rules, 2014, point VIII of definition of Deposit. Any amount receipt from a person, who at the time of acceptance was a Director of the Company, will not be considered as Deposit.
Note:
- Position at the time of acceptance of Deposit will be considered.
- Director will submit a declaration with the Company that amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others.
- Company can accept any amount of loan from the Director.
B. ACCEPTANCE OF DEPOSIT FROM RELATIVES OF DIRECTORS:
Company can’t accept loan from relatives of the director as per Companies Act, 2013 But as per ‘The Companies (Acceptance of Deposit) second amendment Rules, 2015’ dated 15th September, 2015 G.S.R. 695(E) Private Limited Company can accept loan from the relative of the Director if relative furnish 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.
Note:
- Position at the time of acceptance of Deposit will be considered.
C. ACCEPTANCE OF DEPOSIT FROM MEMBERS:
a. Procedures to be followed for taking Loan from Members (Company):
As per Chapter V, Rule 2(1) (c) (VI), any amount received by a Company from any other company is excluded from the definition of deposits. Therefore, loans taken by a Company from any other Company, even if such other Company is its member, will not be treated as deposits. Hence the provisions and procedures required to be followed for accepting deposits in Chapter V under the Companies Act, 2013 will not be applicable in such cases.
b. Procedures to be followed for taking Loan from Members (Company):
As per Chapter V, Rule 2(1) (c) ( VII ), any amount received by a Company from a person who, at the time of the receipt of the amount, was not a Director of the Company but was member of the Company will not be considered as deposit, Because Private Companies are allowed to accept Deposits from the members upto 100% of Paid up Share Capital and Free Reserves.
c. Procedures to be followed for taking Loan from Members (Other than Company & Directors):
Private Company can accept deposits from the Members. However, for this purpose Private Companies are divided into 3 (three) categories i.e. followings:
MCA on 22nd January, 2019 has published Companies (Acceptance of Deposits) Amendment Rules, 2019. They shall come into effect from 22nd January, 2019.
As per earlier 16 “Every company to which deposit rules apply (means loan considered as deposit), shall on or before the 30th day of June, of every year, file with the Registrar, a return in Form DPT-3 mentioning the details of deposit.
- Which Companies are covered in rule 16 explanation:-
All the Companies (Whether, Small, Non Small, Private, Public, OPC etc.) required to file DPT-3 after publication of these rules i.e. 22nd January, 2019
2. What is meaning of “Deposit or Particulars Not Considered as Deposit” as mentioned in explanation.
Deposit: Whatever includes in definition of Deposit as per Companies Act and rules eg. Acceptance of loan from public, acceptance of loan from shareholders by public limited Company.
Particular non considered as deposit:Whatever loan exempted under deposit rules and sections 73 shall be considered as particular of non-considered as deposit. Eg
- Loan from Director is exempted Deposit. However will be covered under this head.
- Loan from shareholders in case of private Companies.
- Loan from Body Corporates not considered as deposit. However covered under above head etc.
Note:
After reading of above questions and explanation, one can opine that since 22nd January, 2019 a Company whether accepted loan from directors, body corporates or any other exempted deposit still shall required to file e-form DPT-3 on or before 30th June every year.
In other words, one can opine that after 22nd January, 2019 every loan shall be reported to ROC in e-form DPT-3 every year before 30th June
Table of Exempted Deposit date wise
| 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
To 13.06.2017 |
After
13.06.2017 To 19.09.2017 |
|
| 1 | Members | Any No. of amount before 01.04.2014 | Cant receive in this period | Same earlier | 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. |
*Company can accept any no. of amount if fulfill conditions given below the chart.
A private company which is a start-up, for five years from the date of its incorporation |
| 2 | Directors | Allowed any amount | Allowed any amount Condition money must be belonging to director only. Not borrowed fund |
Same earlier | Allowed any amount Condition money must be belonging to director only. Not borrowed fund |
Same earlier |
| 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 |
Same earlier |
| 4 | Other Company | Allowed any amount. | Allowed any amount. But check relation of section 185. |
Same earlier | Same earlier | Same earlier |
*Private Company can accept deposits from Members without complying with the Provision of Section 73(2) clause (a-e) following private Companies:
- Which accept from its members monies not exceeding 100% percent of aggregate of the paid up share capital, free reserves and Securities Premium account; OR
- Which is a start-up, for five years from the date of its incorporation; OR
- which fulfill all of the following conditions, namely:-
a. Which is not an associate or a subsidiary of any other Company;
b. If the borrowing of such a company from the banks or financial institutions or anybody corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and
c. Such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under the section.
Provided that all the Companies accepting deposits shall file the details of monies so accepted to the Registrar of Companies in Form DPT-3.
Table LIST OF PERSONS TO WHOM COMPANY CAN ACCEPT OR CAN’T
| Loans from | Conditions, if any: | |
| 1.) | Shareholder:
|
Member: Yes, can accept, but subject to the condition specified in deposit Rules |
| 2.) | Director/Relatives of Director | Yes, can accept, but the director/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. |
| 3.) | 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. |
| 4.) | Any other Individual | Can’t accept because it is prohibited by the definition of Private Company. |
| 5.) | Proprietorship Firm ; | Can’t accept because it can’t be director, Member or relative of Director. |
| 6.) | HUF
|
Can’t accept because it can’t be director, Member or relative of Director. |
| 7.) | Partnership Firm
|
Can’t accept because it can’t be director, Member or relative of Director. |
| 8.) | Any Company
|
Yes, can accept, but also comply with Sec 179(3) wherein the conditions are specified for the lender |
| 9.) | Banks | Yes, can accept |
| 10.) | Trust
|
Yes, can accept, but loan received should be non- interest bearing. |
| 11.) | Outside India
|
Yes, can accept, but subject to the provisions of the Foreign Exchange Management Act, 1999 and rules and regulations made there under. |
| 12.) | Govt. organization ( eg. SIDBI) | Yes, can accept |
| 13.) | Any other Financial Institution which are not incorporated as Banks (eg. Religare, Fullerton, Barclays, Bajaj Finance).
Yes, can accept |
|
Some FAQ’s
| I. | Borrowings which are excluded from the definition of Deposits? |
| i. Amount from government and guaranteed by government.
ii. Amount received from foreign government or foreign Bank. iii. Loan from Banks and Financial Institutions. iv. Amount received against commercial paper. v. Inter corporate borrowing. vi. Subscription to securities and call in advance. vii. Amount from Directors. viii. Secured Bonds/debentures. ix. Convertible bonds/debentures. x. Non-interest bearing security deposit from employee. xi. Amount in trust. xii. Advance and security deposit received by company. xiii. Unsecured loans from promoters. xiv. Amount accepted by Nidhi Company. |
|
| II. | If deposit in the joint name of director and other person then how it will be treated? – |
| 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. | |
| III. | If a person ceases or resign from the post of director after giving loan then such loan will be considered as deposits or not? |
| Requirement of director will be check at the time of receipt of amount. Thus, later he may cease to be a director. | |
| IV. | If a person is director and shareholder of the Company and giving loan to Company whether it will be considered as loan from Director or Member |
| As per my understanding this should be treat as loan from the Director instead of the
Shareholder of the Company. |
|
| V. | Question: Whether LLP can give Loan to Company under this exemption: |
| Solution: NO, LLP can’t give loan to Private Limited Company under this Clause. Because this clause covers only Company not Body Corporate. |