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Deposits under Companies Act 2013

Deposits has been vital source of funding for companies in India. Initially only public companies were allowed to accept deposits, but later through various amendments, Private Limited Companies can now accept deposits from its members with minimum regulatory compliance.

Section 2(31) of Companies Act, 2013,”deposit” includes any receipt of money by way of depositor 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.

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Types of deposits

Deposits may be of two types-

1. Public Deposits
2. Deposits from its members

Before preceding for types of deposits in details lets first understand meaning of Deposits

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Meaning of Deposit

“Deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include –

1. Any amount received from the Central Government, State Government, Local Authority or Statutory Authority constituted under an Act of Parliament or a State Legislature;
2. Any amount received from Foreign Governments, Foreign Banks, Multilateral financial institutions, 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 FEMA Act and Rules;

iii. Any amount received as a loan or facility from any banking company or banking institution;

1. Any amount received as a loan or financial assistance from public financial institutions or any regional financial institutions or insurance companies or scheduled banks;
2. 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;
3. Any amount received by a company from any other company;

vii. Any amount received and held towards subscription money, share application money or advance towards allotment of securities pending allotment. Explanation – For the purposes of this sub-clause, it is hereby clarified that –

If the securities, for which application money was received, can’t be allotted within 60 days from the date of receipt of the application money, such application money is to be refunded to the subscribers within 15 days from the date of completion of 60 days. If not refunded, such amount shall be treated as a deposit under these rules.

viii. Any amount received from a director of the company or a relative of the director of the Private company: Provided that the director of the company or relative of the director of the private company furnishes to the company at the time of giving the money, a declaration in writing that the amount is not borrowed money.

1. Any amount raised by the Issue of Bonds OR Secured Debentures OR bonds OR debentures compulsorily convertible into shares of the company within 10 years:

ix Any amount raised by issue of Unsecured, Listed, Non-Convertible Debentures;

1. 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;
2. Any non-interest bearing amount received and held in trust;

xii. 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 provided that such advance is appropriated against supply of goods or provision of services within a period of 365 days from the date of acceptance of such advance. (b) As an advance received in connection with consideration for an immovable property under an agreement or arrangement. Provided that such advance is adjusted against such property in accordance with the terms of agreement or arrangement; (c) As a security deposit for the performance of the contract for supply of goods or provision of services; (d) As an advance received under long term projects for supply of capital goods except those covered under item (b) above: (e) As an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement; (f) As an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government; (g) As an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications; xiii. 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. Any amount accepted by a Nidhi company in accordance with the rules made under Section 406 of the Act.

1. Any amount received by way of subscription in respect of a chit under the Chit Fund Act;

xvi. Any amount received by the company under any collective investment scheme; xvii. An amount of Rs. 25 lakh 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 five years from the date of issue) in a single tranche, from a person. xviii. Any 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 Securities and Exchange Board of India in accordance with regulations made by it.

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Regulatory sections for Deposits

The provisions of Deposits are covered under the following sections and their relevant rules under the Companies Act, 2013 – Section 73 – Prohibition on Acceptance of Deposit from Public. Section 74 – Repayment of deposits etc. accepted before Commencement of CA, 2013 Section 75 – Damages for Fraud Section 76 – Acceptance of deposit from public by certain Companies Section 76A – Punishment for contravention of Section 73 or Section 76. On a very first note, Section 73 prohibits every company (except banking company, NBFCs and) from inviting, accepting or renewing deposits from the public. However, such companies can accept deposits from its members subject to the conditions specified under the Act.

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Public Deposits

Eligibility: A Public Company shall fulfill following two conditions to accept deposits-

1. Net worth of not less than 100 Cr or
2. Turnover of not less than 500 Cr

Consent of Shareholders through special resolution is mandatory.

But if the company is accepting deposits within the limit of Section 180(1)(c) i.e. if the total borrowing of the Company doesn’t exceed aggregate of its paid-up share capital, free reserves and securities premium account, then the consent of shareholders through Ordinary Resolution is sufficient.

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Condition’s to Accept Deposit by Public Company

A public company can accept deposits if it fulfills the following conditions-

1. Approval of shareholders in General Meeting by ordinary resolution
2. Issue of Circular for inviting deposits in form DPT-3
3. Every company shall file return of acceptance of deposits in form DPT-3
4. Every company accepting deposits shall certify that it has not defaulted in repayment of deposit or interest. Even if default has occurred then 5 years has been elapsed from the date of default
5. Every company having outstanding deposits shall deposit 20% of the amount of deposit maturing during the financial year on or before 30^th April of each year and such amount shall be kept in a separate bank account to be called deposit repayment reserve account.
6. Deposit shall not be invited or renewed wherein the rate of interest or brokerage fee exceeds the maximum rate of interest or brokerage prescribed by the RBI for acceptance of deposits by NBFCs.
7. If the deposit to be accepted from its members along with other deposits, outstanding on the date of acceptance or renewal exceeds 35% (100% for Specified IFSC Public Company) of the aggregate of its paid-up share capital, free reserves and securities premium account of the company, then such company shall not accept such deposits.
8. Deposits which are repayable on notice within a period of 6 months or more than 36 months shall not be accepted or renewed.

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Condition’s to Accept Deposit Private Companies

Private Limited Companies can accept deposit after obtaining members approval in the general meeting. There are certain conditions to be followed for such acceptance as under-

1. Deposits which are repayable on notice within a period of 6 months or more than 36 months shall not be accepted or renewed.
2. Every company shall file return of acceptance of deposits in form DPT-3
3. A company may accept deposits repayable earlier than 6 months but not earlier than 3 months, to meet its short-term fund requirements provided that such deposits doesn’t exceeds 10% of the paid-up share capital, free reserves and securities premium account of the company.
4. Amount of deposit to be accepted doesn’t exceed 100% of the aggregate of paid-up share capital, free reserves and securities premium account.

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Exception to new start ups from maximum limit for acceptance of deposit

The maximum limit for acceptance of deposit from its members shall not be applicable on the following classes of Private Companies:

1. Private Company which is a start-up, for 5 years from the date of its incorporation
2. Private Company which fulfils the following conditions:
3. a) It is not an associate or a subsidiary of any other company;
4. b) Its borrowings from banks or financial institutions or any body corporate is less the twice of its paid-up share capital or 50 crore rupees, whichever is less; and
5. c) It has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits.

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