Permissible Deposits – Private Companies
Permissible Deposits – Private Companies
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. 91 titled “Acceptance of Deposit by Private Limited Companies” written by
Author dated: 11th August, 2015. Since many amendments made by the
MCA till 29th Oct., 2017. This spark editorial incorporated all
major amendments to Deposit Rules.
This editorial would assist in understanding the
provisions, requirement of acceptance / renewing of deposit under CA, 2013.
This is article no. 282 of the series of editorials written by the author on corporate
laws {Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.
Introduction:
To run any business one of the most important
factor is Money “Paisa”. Source of funding for Companies are Share Capital,
Loan, Borrowings etc. Loans are the major source of funding for most of the
Companies apart from their Share Capital. Companies borrow from various sources
like banks, financial institutions, Inter Corporate Borrowings, Stake Holders
etc. while Public Limited Companies borrows from mass public by accepting
public deposits. Private Companies are strictly prohibited from accepting any
loan or deposits from the public.
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 is 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.
Many representations made to the Government/ MCA
by the Stake holders (i.e. Corporates, Business houses etc.) and Government
also feels that there is need to provide some relaxations to run the business
as “Ease of Doing Business”. MCA come with many amendments in Rules through
notifications and circulars time to time. i.e.



First Quest:
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”.
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.
·
Company
have to give details of the same in the Directors Report (Like: Amount Received
during the year, amount at the beginning of the year and amount at the end of
the year)
B. ACCEPTANCE
OF DEPOSIT FROM RELATIVES OF DIRECTORS:
Company can’t accept loan from
relatives of the director as per Companies Act, 2013 at the initial stage of
the Act. However, 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.
·
Company
can accept any amount of loan from the Director.
·
Company
have to give details of the same in the Directors Report (Like: Amount Received
during the year, amount at the beginning of the year and amount at the end of
the year)
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 :
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:
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
|
-
|
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
in above the chart.
A private
company which is a start-up, for five years from the date of its
incorporation any amount.
|
2
|
Directors
|
Allowed any amount
|
Allowed any amount
Condition money must be belonging to director only. Not borrowed fund |
Allowed any amount
Condition money must be belonging to director only. Not borrowed fund |
Allowed any
amount
Condition money must be belonging to director only. Not borrowed fund |
Allowed any amount
Condition money must be belonging to director only. Not borrowed fund |
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:
1) 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
2) Which is a start-up,
for five years from the date of its incorporation; OR
3)
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.
|
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
|
|
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.
|
(Author
– CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice
from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer:
The
entire contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION.
IF director Karta of HUF or Member in HUF then can we accept from this HUF??
ReplyDeleteNice
ReplyDeleteSir Pls mail me this
thanks for the tips and information..i really appreciate it.. Private Limited Company Formation
ReplyDeleteCan private company accepts loan from relative of shareholders?
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