Acceptance of deposits

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Ramachandra Bhakta (Querist)
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16 February 2016 Dear Expert,

Can you please explain the applicability for provisions regarding acceptance of deposits and unsecured loans for Companies under the Companies Act, 2013 for Financial Year 2015-16?

Thanks.

CS Divesh Goyal

CS Divesh Goyal (Expert)
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16 February 2016 Mr. Ramchandra,

Provisions for Deposit are different-2 for Private or Public Company. For which Company you are talking about.

Ramachandra Bhakta

Ramachandra Bhakta (Querist)
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16 February 2016 Divesh Sir, I am asking for Private Limited Companies. What are the provisions regarding acceptance of deposits and Unsecured loans for a Private Company.

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CS Divesh Goyal

CS Divesh Goyal (Expert)
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16 February 2016 ACCEPTANCE OF DEPOSIT FROM MEMBERS IN CASE OF PRIVATE LIMITED COMPANY
GOYAL DIVESH & ASSOCIATES
Practicing Company Secretary

BACKGROUNGD:

Loans are the major source of funding for most of the Companies apart from their Share Capital. Companies borrow from various sources like banks and various other financial institutions. Whereas,Public Limited Companies borrow from mass public by accepting public deposits.Private Companies are strictly prohibited from accepting any loan or deposits from the public.
Till 5th June, 2015 a Private Company (Non-NBFC) was permitted to accept or renew deposits from its members subject to a limit of 25% of its aggregate of paid up capital & free reserves and also subject to compliance of
Stringent conditions laid down under the provisions of Section-73(2).

A Private Company (Non-NBFC) is permitted to accept monies (whether secured or unsecured) from its members up to a maximum of 100% of aggregate of its paid up capital and free reserves

(Which does not include securities premium). This is however, subject to the condition of intimation of details to ROC in prescribed manner.
The word “Company” in Section 73 includes a public Company of any size and a private Company.

Relaxation:

Provisions of Sec. 73(2) (a) to (e) shall not apply to a Private Company which accepts from its members monies not exceeding 100% of aggregate of the paid up share capital and free reserves, and such Company shall file the details of monies so accepted to the Registrar in such manner as may be Specified.

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.

B. 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 (Company):

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): (upto 100% of paid up share Capital and Free Reserve)

Clause (a) to (e) of Section 73(2) will not be applicable on Private Limited Company if deposit is upto 100% of paid up share capital and Free Reserve.
P A R T I C U L A R S
Work
Before Meeting • Issue Notice of Board Meeting-[173(3)] & SS-1
• Call Meeting by giving not less than 7 (Seven) days Notice in writing.
Prepare Agenda of Board Meeting
Prepare Attendance Sheet of Board Meeting
Work
During Meeting Place before Board A copy of Resolution of Acceptance of Deposit.
Place before Board Resolution to borrow money u/s 179(3).
Fix Day, Date, Time of Extra-ordinary General Meeting.
Place Draft Notice of Extra-ordinary General Meeting before Board.
Board will authorize Director to issue Notice of Extra-ordinary General Meeting.
CALL EXTRA-ORDINARY GENERAL MEETING
Issue Notice of GM [Section- 101(1)] (SS-2) Give At least 21 clear days Notice of Extra-ordinary General Meeting through Electronic Mode or in Writing.
Attach Explanatory Statement in Notice of Extra-ordinary General Meeting. [Section-102]
Work at the General Meeting Pass Ordinary Resolution for acceptance of deposit from the members upto 100% of paid up share capital and free reserve.
Deposit accepted by a Company shall be repaid with interest in accordance with the terms and conditions of the agreement referred to in that sub-section.

 Security for the repayment at the option of the Company:
The Company may provide security for the repayment of the deposit with interest by creation of charge on the assets of the Company. If the deposit is not so secured, the Company shall state in the resolution that the deposit is unsecured.

If Company Provides Security: Then the Company will file form CHG-1 within 30 days of creation of charge with ROC.

 Deposit Application Form:
Member depositing money to submit money along with a deposit application form as specified by the Company. (No form is prescribed under the Act). The deposit application form to contain a declaration by the intending member/depositor that the deposit is not being made out of any money borrowed by him from any other person. (The provisions does not exclude relatives).

 Deposit Receipt:
Company has to furnish a deposit receipt to the depositor in prescribed manner as per Rule 12(2) of Chapter V Rules within 21 days from the date of receipt of money or realization date of the Cheque.

 Register of Deposit:
Company has to maintain, at its registered office, a separate register for deposits accepted in prescribed manner as per Rule 14 of Chapter V Rules and enters prescribed particulars within 7 days from the date of issuance of deposit receipt. Entries in the Register to be authenticated by a Director or Secretary or any other officer authorized by the Board for this purpose.

 Filing of Detail of Deposit:
Company has to file the details of monies so accepted to the Registrar in such manner as may be specified.

 Filing of Return of Deposit:
Every Company shall on or before the 30th day of June, of every year, file with the Registrar, a Return in form DPT-3 along with the fee.

 Rate of Interest:
Company will pay penal rate of interest of 18% per annum for the overdue period in case of deposit.

PROCEDURES TO BE FOLLOWED FOR TAKING LOAN FROM MEMBERS (OTHER COMPANY & DIRECTORS):
(MORE THAN 100% OF PAID UP SHARE CAPITAL & FREE RESERVE)

P A R T I C U L A R S
Work
Before Meeting • Issue Notice of Board Meeting-[173(3)] & SS-1
• Call Meeting by giving not less than 7 (Seven) days Notice in writing.
Prepare Agenda of Board Meeting
Prepare Attendance Sheet of Board Meeting
Work
During Meeting • To pass resolution for acceptance of deposit from members
• Approve Draft DPT-1 (Circular)
• Appoint a Trustee
• Call General Meeting
• Authorize Director or Secretary for further process
Place before Board Resolution to borrow money u/s 179(3).
Fix Day, Date, Time of Extra-ordinary General Meeting.
Place Draft Notice of Extra-ordinary General Meeting before Board.
Board will authorize Director to issue Notice of Extra-ordinary General Meeting.
CALL EXTRA-ORDINARY GENERAL MEETING
Issue Notice of GM [Section- 101(1)] (SS-2) Give At least 21 clear days Notice of Extra-ordinary General Meeting through Electronic Mode or in Writing.
Attach Explanatory Statement in Notice of Extra-ordinary General Meeting. [Section-102]
Work at the General Meeting Pass Ordinary Resolution for acceptance of deposit from the members upto 100% of paid up share capital and free reserve.

o Issue of Circular:

• Company will issue circular in DPT-1 to all members by registered post along with the acknowledgement due or speed post or by electronic mode.
• The Circular may be published in English Language in an English News Paper and in a vernacular language in a vernacular newspaper having wide circulation in the state.
• A circular shall be issued to the members containing a Statement showing [73(2) (a)]:
 The financial position of the Company;
 The credit rating obtained;
 Total number of existing depositors;
 Amount due to existing depositors; and
 Such other particular as may be prescribed.

o File DPT-1 with ROC:
At least 30 days before issue of circular, DPT-1 signed by BOD or Person Authorized by the Board.

o Security for the repayment at the option of the Company:
The Company will provide security by way of charge on its assets for the repayment of the deposit with interest by creation of charge on the assets of the Company.

o Creation of Security: Company will file form CHG-1 for creation of Charge within 30 days of
Creation of Charge.

o Appointment Trustee:
Company will appoint a trustee for depositors for creating security on the deposits. A written consent shall be obtained from the trustee for depositors before their appointment and a statement shall appear in the circular to the effect that the trustee for depositors have given their consent.

o Deposit Trust Deed:
Company shall execute a deposit trust deed in from DPT-2 at least 7 days before issuing the circular in the form of advertisement.

o Maintenance of Liquid Fund:
The Company shall deposit an amount equal to 15% of the amount of deposits maturing during the financial year and the financial year next following, to be kept in a Schedule bank in an account called Deposit Repayment Reserve Account.
o Deposit Insurance:
The Company shall enter into a contract for providing deposit insurance at least 30 days before the issue of circular or advertisement or at least thirty days before the date of renewal, as the case may be.
o Certificate from the Company:
The Company shall certify that it has not committed any default in the repayment of deposits accepted before or after the commencement of the Companies Act, 2013 or payment of interest on such deposits.

o Deposit Application Form:
Member depositing money to submit money along with a deposit application form as specified by the Company. (No form is prescribed under the Act). The deposit application form to contain a declaration by the intending member/depositor that the deposit is not being made out of any money borrowed by him from any other person. (The provisions do not exclude relatives).

o Deposit Receipt:
The Company shall furnish a deposit receipt to the depositor in prescribed manner as per Rule 12(2) of Chapter V Rules within 21 days from the date of receipt of money or realization date of the Cheque.

o Register of Deposit:
Company to maintain at its Registered Office, a separate register for deposits accepted in prescribed manner as per Rule 14 of Chapter V Rules and enters prescribed particulars within 7 days from the date of issuance of deposit receipt. Entries in the Register shall be authenticated by a Director or Secretary or any other Officer authorized by the Board for this purpose.

o Filing of Detail of Deposit:
The Company shall file the details of monies so accepted to the Registrar in such manner as may be specified.

o Filing of Return of Deposit:
Every Company shall on or before the 30th day of June, of every year, file with the Registrar, a return in form DPT-3 along with the fee.

Clause (a) to (e) of Section 73(2) will not be applicable on a Private Limited Company if deposit is upto 100% of paid up share capital and Free Reserve.

LANGUAGE: SEC 73(2) (A) TO (E) OF COMPANIES ACT, 2013:

73(2) A company may, subject to the passing of a resolution in general meeting and subject to such rules as may be prescribed in consultation with the Reserve Bank of India, accept deposits from its members on such terms and conditions, including the provision of security, if any, or for the repayment of such deposits with interest, as may be agreed upon between the Company and its members, subject to the fulfillment of the following conditions, namely:-
(a)issuance of a circular to its members including therein a statement showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in such form and in such manner as may be prescribed;
(b) Filing a copy of the circular along with such statement with the Registrar within thirty days before the date of issue of the circular;
(c) Depositing such sum which shall not be less than fifteen per cent. Of the amount of its deposits maturing during a financial year and the financial year next following, and kept in a scheduled bank in a separate bank account to be called as deposit repayment reserve account;
(d) Providing such deposit insurance in such manner and to such extent as may be prescribed;
(e) Certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits;

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