by Madhusudan Bose, who is a lawyer
and company secretary by profession, at PRA Law Offices, New Delhi]
stringent conditions for acceptance of deposits by any company. In the
interests of the ordinary depositor, “deposits” are expansively defined to include
any “receipt of money by way of deposit
or loan or in any other form by a company” UNLESS the category of amount
received is expressly excluded from the scope of “deposits” under the
conveniently broad under the Companies Act, 1956, and kept out most ordinary
business transactions and financing arrangements from the scope of “deposits”. Thus, compliance with the deposit rules was
not particularly onerous.
of the new Companies Act, 2013 (“2013
Act”) relating to deposits have come into force. The new legal regime has brought about two
changes which require urgent attention by all companies:
one hand, some financing arrangements, which were excluded earlier, have been
brought under the scope of “deposits”. On the other hand, the exemption
accorded to other categories of transactions has been made subject to several
received under the 1956 Act, and requires all future deposits to comply with
the new regime.
understand the new legal regime, so that businesses can accordingly prepare themselves,
and ensure that their commercial and financing arrangements are in due
compliance with the revised framework.
received from members and directors’ relatives by private companies
excluded from the definition of “deposits”, under the Companies (Acceptance of
Deposits) Rules, 1956 (“Old Rules”):
received by any company from its directors;
received by a private company from its members, and directors’ relatives.
companies), and relatives of its directors are covered under the definition of
deposits, as they are not specified to be excluded from the definition of
private) from its directors continue to be excluded from the scope of
“deposits” under the New Rules.
received in ordinary course of business of the Company
supply of goods or properties or for the rendering of any service were excluded
from the definition of the deposits. No time limits were prescribed by the Old
exclusions, and specified additional conditions for claiming the benefit of
exclusion from the definition of “deposits”.
Accordingly, the New Rules exclude “any
amount received in the course of, or for the purposes of, the business of the
company” from the definition of “deposits” if they fall under the following
received as an advance for the supply of goods or provision of services,
goods or provision of services within a period of three hundred and sixty five
days from the date of acceptance of such advance.
is the subject matter of any legal proceedings before any court of law.
time limit also does not apply to amounts received as advance under long term
projects for supply of capital goods. [See (e) below]
received as advance in connection with consideration for property under an
agreement or arrangement, provided:
accordance with the terms of agreement or arrangement.
time limit has been specified within which advance received as consideration
for property should be adjusted.
received as security deposit for the performance of the contract for supply of
goods or provision of services;
towards part payment of the consideration for the contract. On the other hand, a security deposit is made
for guaranteeing due performance of the contract.
received as advance under long term projects for supply of capital goods except
those covered under item (b) above
and machinery, which are used for the production of other goods or services.
The condition that advances must be appropriated within three hundred and sixty
five days has not been made applicable to capital goods.
/ advance money against shares and other securities
way of subscriptions to any shares, stock, bonds or debentures from the scope
New Rules have expanded the scope of exclusion by specifying that any amounts
towards subscription to any securities (and not just shares, debentures etc) shall be excluded from the
scope of “deposits”.
language under the New Rules indicates that only amounts received and held
pursuant to an offer made in accordance with the provisions of the Companies
Act, 2013 will be eligible for exclusion from the definition of deposits.
importantly, the New Rules specify that application / advance monies shall be
excluded from the scope of “deposits” subject to the following conditions:
of receipt of the application / advance money;
within aforesaid period, such application / advance money has been refunded
within 15 days of expiry of such 60 days.
amount for any other purpose shall not be treated as refund.
bonds or debentures
by mortgage on fixed assets of the company from the definition of “deposits”.
exemption, the security on bonds or debentures must be provided by way of a first charge or a charge ranking pari passu
with the first charge on any of the assets specified in Schedule III
excluding intangible assets of the company.
amount of the bonds or debentures should not exceed the market value of the
assets. It is further provided that such
market value should be assessed by a registered valuer.
New Rules have expressly clarified that bonds or debentures must be secured by
a first charge over the assets of the company for being excluded from
the definition of deposits.
provisions relating to registered valuer have not come into force till
date. Explanation II to Rule 6 provides
that pending notification of said provisions relating to registered valuer, the
valuation of stocks, shares, debentures, securities etc. shall be
conducted by an independent merchant banker who is registered with the
Securities and Exchange Board of India or an independent chartered accountant
in practice having a minimum experience of ten years.
bonds or debentures
debentures, which are compulsorily convertible into shares of the company
within a period of five years shall be excluded from the definition of
excluded from the definition of deposits. Further, even in case of compulsorily
convertible debentures or bonds, the conversion must happen within a period of
five years for exclusion from scope of “deposits”.
in transit and amounts received in trust
The Old Rules excluded “any amount
received in trust or any amount in transit” from the definition of
from the definition of “deposits” under the New Rules.
only if they comprise of non-interest bearing amounts.