DEPOSITS UNDER DEPOSIT RULES

Clause (31) of Section 2 of the Companies Act, 2013 define Deposits inclusively as 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.

Clause (c) of Rule 2 of the Companies (Acceptance of Deposits) Rules, 2014 further elaborates definition of deposit. The “deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include –

(i) Amount from Government Authorities: any amount received from the Central Government or a State Government, or any amount received from any other source whose repayment is guaranteed by the Central Government or a State Government, or any amount received from a local authority, or any amount received from a statutory authority;

(ii) Amount form Foreign Authorities: any amount received from foreign Governments, foreign or international banks, multilateral financial institutions (including, but not limited to, International Finance Corporation, Asian Development Bank, Commonwealth Development Corporation and International Bank for Industrial and Financial Reconstruction), foreign Governments owned development financial institutions, foreign export credit agencies, foreign collaborators, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of Foreign Exchange Management Act, 1999 (42 of 1999) and rules and regulations made there under;

(iii) Bank Loan: any amount received as a loan or facility from any banking company or from the State Bank of India or any of its subsidiary banks or from a banking institution, or a corresponding new bank, or from a co-operative bank;

(iv) Financial Assistance from government: any amount received as a loan or financial assistance from Public Financial Institutions notified by the Central Government;

(v) Issue of Commercial Papers: any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by the Reserve Bank of India;

(vi) Inter – Corporate Loan: any amount received by a company from any other company;

(vii) Securities Application Money: any amount received and held pursuant to an offer made in accordance with the provisions of the Act 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 the securities for which application money or advance for such securities was received cannot be allotted within sixty days from the date of receipt of the application money or advance for such securities and such application money or advance is not refunded to the subscribers within fifteen days from the date of completion of sixty days, such amount shall be treated as a deposit under these rules. Any adjustment of the amount for any other purpose shall not be treated as refund.

(viii) Loan from Directors: any amount received from a person who, at the time of the receipt of the amount, was a director of the company.  The director 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 loans or deposits from others;

(ix) Secured or Compulsory Convertible debentures and Bonds: any amount raised by the issue of bonds or 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 of the company within five years;

(x) Security Deposit from Employees: any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest bearing security deposit;

(xi) Amount received in trust: any non-interest bearing amount received or held in trust;

(xii) Advance of Business receipts: any amount received in the course of, or for the purposes of, the business of the company,-

(a) as an advance for the supply of goods or provision of services against supply of goods or provision of services within a period of three hundred and sixty five days from the date of acceptance of such advance;

(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 the amount received under items (a), (b) and (d) above 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 under these rules. The amount shall be deemed to be deposits on the expiry of fifteen days from the date they become due for refund.

(xiii) Loan brought by Promoters: 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;

(xiv) Deposit with Nidhi Company: any amount accepted by a Nidhi company in accordance with the rules made under section 406 of the Act. Any amount.-

(a) received by the company, whether in the form of instalments or otherwise, from a person with promise or offer to give returns, in cash or in kind, on completion of the period specified in the promise or offer, or earlier, accounted for in any manner whatsoever, or

(b) any additional contributions, over and above the amount under item (a) above, made by the company as part of such promise or offer, shall be treated as a deposit.

“Eligible Company” means a public company having a net worth of not less than one hundred crore rupees or a turnover of not less than five hundred crore rupees and which has obtained the prior consent of the company in general meeting by means of a special resolution and also filed the said resolution with the Registrar of Companies before making any invitation to the Public for acceptance of deposits.

We have earlier discussed general provisions related to Deposits according to the Companies Act, 2013 here. In future posts, we will study provisions of the Deposit Rules.

Every depositor should ensure eligibility of the company before making any deposit with a company.

 

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