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Section 58A

CS Pooja (Company Secretary) (305 Points)

31 March 2011

Dear All,

Please clarify following:

Can Closely Held Public Limited Company accept security deposit from dealers with interest say 14%?

Will it be considered as Deposit Under Section 58A?

What will be the case if such deposit is accepted in the financial year and refunded before the closure of the year.

Regards

Pooja Sawant

Company Secretary

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9 Replies

CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 01 April 2011

As per section 2(b)(vi) of companies(acceptance of deposit) rules, it states that deposit shall not include,

''any amount received by way of security or as an advance from any purchasing agent, selling agent, or other agents in the course of or for the purposes of the business of the company or any advance received against orders for the supply of goods or properties or for the rendering of any service;''

Therefore since in your case, it is not a deposit, interest rate rules framed by RBI should not be applicable i guess.

(source; VS DAtey, MCA website)

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CS Pooja (Company Secretary) (305 Points)
Replied 01 April 2011

According to me as we want to pay interest to therefore it will be treated as deemed deposit.

Others views are solicited.

Regards,

Pooja

SkDash (CS (Member) CWA (Final)) (909 Points)
Replied 01 April 2011

Pooja- I agree with sunny. it will not be considered as deposit no matter whether u r paying interest or not. But interest rate should be unique and co should not give unfaitr adv to a particular dealer over others.

Others views solicited.

CS Pooja (Company Secretary) (305 Points)
Replied 01 April 2011

But if we are paying interest then purpose of exemption is not getting satisfied.

SkDash (CS (Member) CWA (Final)) (909 Points)
Replied 01 April 2011

pooja- purpose is to facilitate trade and to relieve the company from complying provisions and procedure of deposit rules for the transactions which happen normally in due course of businee.and this is the normal process of a company accepting deposit/ advance from dealer thats why it is exempted. Similarly loan from bank, financial institution, inter corporate loans are also exempted. Do u thing Inter corporate loans are also interest free ?

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CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 01 April 2011

''There were many instances where unscrupulous companies duped the investors by accepting public deposits without any limit and hence control over acceptance of public deposits is provided under companies act''

(quoted directly from VS Datey)

Based on above principle the provisions regarding deposits have been formulated. Without going into technicalities, we can assume that dealers and other agents who deal with companies are more stronger than general public, therefore protection only to general public, and hence accepting security deposits not a deposit for the purpose of section 58A. (my view)

CS Pooja (Company Secretary) (305 Points)
Replied 01 April 2011

Acceping secrity deposit is exempted under sectin 58 A-Agreed.

But my query is whether accepting security deposit with intetest of 14%, 18% is exempted?

CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 01 April 2011

I think you are raising an issue of propriety, that is, whether such high interest can be paid or not. if the deposit itself is not covered under the rules, mere high interest rate attached to it should not be sufficient grounds for it to be categorised as deposit for purposes of section 58A. if that is the market trend, where in such high interest has to be paid, then no issue or else, auditors of the company can give an adverse comment in CARO. Whatever the case may be, it cannot be deposit for the puposes of section 58A.

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