Acceptance of Deposits - Highlights of the Law

1.

Any amount received or guaranteed from Central/ State Government(s), Local Authorities, International Banks, Foreign Government, multilateral financial institution, foreign body corporates, foreign citizens subject to the Foreign Exchange Management Act (“FEMA”).

2.

Loan received from any banking company.

Loan or financial assistance from Public Financial Institutions, regional financial institutions, Insurance Companies or Scheduled Banks as defined in the Reserve Bank of India Act, 1934.

3.

Funds received against issue of commercial paper or any other instruments issued in accordance with the guidelines/ notifications issued by the Reserve Bank of India (“RBI”).

4.

Funds received by a company from any other company

5.

Amount received and held under an offer made towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, so long as such amount is appropriated only against the amount due on allotment of the securities applied for.

(If no allotment is made against such receipt within 60 days from the date of receipt of amount and such application money or advance is not refunded to the subscribers within 15 days from completion of the 60 days, such amount will be treated as Deposit.)

6.

Amount raised by the issue of bonds, debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company OR bonds or debentures compulsorily convertible into shares within ten years.

7.

Any amount raised by issue of non-convertible debenture not constituting a charge on the assets of the company and listed on a recognized stock exchange and the applicable regulations of the SEBI.

8.

Amount received from an employee provided that such amount does not exceed his annual salary under a contract of employment and such deposit is in the nature of non-interest bearing security deposit.

9.

Any non-interest bearing amount received and held in trust.

10.

Amount received by way of subscription in respect of a chit fund under the Chit Fund Act, 1982

11.

Amount received in the course or for the purposes of the business of the company.

1. Amount received as an advance for supply of goods or services, provided such advance is appropriated against supply of goods or services within a period of 365 days from the date of advance.
2. Amount received as consideration for an immovable property under an arrangement or agreement.
3. Security deposit for the performance of the contract for supply of goods or services and under long term projects for supply of capital goods except those covered in (b) above.
4. Amount received as consideration for providing future services such as warranty, maintenance contract, if period for providing such services does not exceed the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less
5. Advance received by any sectoral regulator or in accordance with directions of Central or State Government.
6. Advance for subscription towards publications, whether in print or electronic to be adjusted against receipt of such publications.

However, if the amount received under (a), (b) and (d) becomes refundable with or without interest due to the reasons that the company accepting the money does not have necessary permission or approval, wherever required, to deal in the goods or properties or services for which the money is taken, then the amount received shall be deemed to be a deposit.

12.

Any amount brought in by the promoters by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank. Provided that such as the loan is brought in are by the promoters themselves or by their relatives or by both and the exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter.

13.

Amount accepted by a Nidhi company in accordance with the rule made under Section 406 of the CA 2013.

14.

Amount received by the company under any collective investment scheme in compliance with regulations framed by the SEBI.

15.

An amount of twenty five lakhs rupees or more received by a start-up company, by way of a convertible note convertible into equity shares or repayable within a period not exceeding ten years from the date of issue in a single tranche, from a person.

16.

Amount received from a person who, at the time of receipt of amount, was a Director of the Company or a relative of the Director of the Private Company.

(Provided the lender should give a declaration in writing to the Company that the amount is bot being given out of funds acquired by him by borrowing or accepting loans or deposits from others)

17.

Amount received by a company from Alternate Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts, Real Estate Investment Trusts and Mutual Funds registered with the SEBI

Eligible Company

• Means a public company, as referred in Section 76 of the CA 2013, having a networth of not less than INR 100 (One Hundred) crore or a turnover of not less than INR 500 (Five Hundred) crore, and which has obtained a prior consent of the company in general meeting by means of a Resolution and also filed with the Registrar of Companies (“ROC”), provided that the eligible company is accepting Deposits within the limits of section 180(1) (c) of CA 2013 by means of an Ordinary Resolution
• Eligible company shall not accept or renew any deposit whether secured or not which is repayable on demand or upon receiving a notice within a period which is less than six months and more than thirty-six months from the date of such acceptance or renewal of deposits. For meeting any short term funds requirement, the company can accept or renew deposits with repayment period earlier than six months, provided that such deposits shall not exceed ten percent of the total of paid up share capital, free reserves and securities premium account and the repayment term of such deposits are not less than three months.
• The company cannot accept or renew deposit if the combined amount of deposits exceeds thirty-five percent of paid up share capital, free reserves and securities premium account. However specified IFSC Public Company and Private company can accept and renew deposits up to hundred percentage of paid up share capital, free reserves and securities premium account provided the Registrar accepts the same in Form DPT-3.
• No company shall accept or renew deposits from members if the aggregate amount of deposits including existing deposits exceeds ten percent of paid up share capital, free reserves and securities premium account or any other deposits exceeding twenty-five percent of paid up share capital, free reserves and securities premium account.

Prohibition on acceptance of deposits from public

U/s 73 it is stated that no company can accept deposits from public except under the provision of CA 2013 and CAD 2014. However, these provisions are not applicable to banking company, non-banking finance company, other company as expressly stated by the central government

Private Company

Can accept deposit from its member not exceeding 100% of paid up share capital and free reserves and such company shall file details with ROC in Form DPT-3 annually.

Maximum limit of amount of deposits shall not apply to following private companies:

• private company which is a Start-up, for 10 years from the date of incorporation;
• which fulfils all the following conditions:

1. which is not an associate or subsidiary company of any other company;
2. the borrowing of company from banks or financial institutions or any body corporate is less than twice of its paid-up share capital or INR 50 crore, whichever is less; and
3. such company has not defaulted in the repayment of such borrowings subsisting at the time of acceptance of deposits from members.