Security deposit

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

20 June 2014 Company A & B are pvt. Ltd companies with common director. A is providing certain services to B for which consideration is paid to A at market rates. For the performance of contractual obligations, A is required to provide certain amount to B as interest free refundable security deposit.

Security deposit does not fall within the ambit of "deposit" as per Acceptance of deposit Rules 2014.

Deposit is defined to include Loan but there is no definition given for Loan.

In the given scenario, whether payment of security deposit will attract provision of section 185 which prohibits loan to be given to the director or to a concern in which director is interested?

Whether, section 186(7) relating to minimum interest rate will be applicable to security deposit also?

CA. Amit G. Chandani

CA. Amit G. Chandani (Expert)
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21 June 2014 If it is in the nature of deposit, section 185 is not applicable.
Only section 186 will be applicable in this case.
Loan include deposit – that was the position under section 372A of CA, 1956 by virtue of Explanation therein. We don’t find such explanation in Section 186 of CA, 2013.

Querist : Anonymous

Querist : Anonymous (Querist)

23 June 2014 Thanks. If 186 is applied, then there has to be interest payout as per 186(7). In that scenario, there would be additional consideration flowing out to the service provider i.e. interest + service income which is already at market rates. Any views on this?

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