CA Gaurav Mittal

The companies Act 2013 by way of Section 73 to 76 has bought many changes in respect of Acceptance of deposits by company and the changes are applicable are on Private Limited Companies also.

To understand the ambit of Section 73 to 76 we first need to know the definition of Deposits under old Companies Act wiz a wiz to new Companies Act,2013.

Meaning of Deposit As per Companies Act 1956

1. As per explanation to Section 58A “deposit means any deposit of money with, and includes any amount borrowed by, a company but shall not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

2. uch exempted categories prescribed by the Central government in consultation with RBI (through Companies (Acceptance of Deposits) Rules, 1975 are as follows:

  • Amounts Received from the Government/Foreign Sources
  • Loans from Banking company/Financial Institution
  • Inter company deposits
  • Amount Received from Employee by way of Security Deposit
  • Amount Received from Agents
  • Advances against Orders (for supply of goods etc.)
  • Subscriptions to Securities
  • Calls in Advance of Shares
  • Trust Moneys
  • Amount Received from Directors or his relative
  • Amount Received from Members (only in case of Private co.)
  • Secured Bonds or Debentures
  • Convertible Bonds or Debentures
  • Promoters Unsecured Loans pursuant to stipulations laid down by the financial institutions for granting the loan.

Also, section 3 (1)(iii) of the Companies Act, 1956 prohibits a private company from the inviting and accepting any DEPOSIT from person other than its members, directors or their relatives.

DEFINITION OF DEPOSIT UNDER COMPANIES ACT 2013

In addition of above following has been included in the definition of Deposits

1) Any amount received against subscription to any securities including share application money provided the securities are allotted within 60 days from the date of receipt of the application money or advance.

If the securities are not allotted within 60 days then the same should be refunded within 15 days else the same shall be treated as deposit after completion of 15 days.

2)      Any amount received from Director of the company provided the Director furnishes a declaration that the amount given is not out of borrowed funds.

3)  Any amount received from an employee of the company not exceeding his annual salary in the nature of non interest bearing security.

4)  Any amount received in the course of or the purpose of the business for the following :-

a. As advance for the supply of goods or provision of services provided such advance is appropriated against supply of goods or provision of service within 365 days from the receipt of such amount,

b. As advance received in connection with consideration for property under an agreement or arrangement,

c. As security deposit for the performance of the contract for supply of goods or provision of services.

d. As advance received under long term projects for supply of capital goods.

If any amount received under clause (a),(b) and (d) becomes refundable due to the reasons that the company accepting money does not have necessary permission or approval to deal with the goods or services then the amount received shall be deemed to be a deposit after the expiry of 15 days from the date they become due for refund.

5)  Any amount accepted by a Nidhi Company in accordance with rules made u/s 406 of the Act.

LET Us Understand the Concept of Acceptance of Deposits under Companies Act 2013 with the help of 2 practical examples:

EXAMPLE 1

ABC Private Ltd has a Share Capital of Rs 10 Crore and it wishes to raise another Rs 10 Crore by the following means:-

  • 5 Crore from Government Agency, Financial institutions, Banks or by way of Commercial Paper.
  • 50 Lakhs by way of Share Application.
  • 50 Lakhs from Director by way of Loan.
  • 50 Lakhs from issue of bonds and debentures.
  • 50 Lakhs from ICD.
  • 25 Lakhs from Employees.
  • 50 Lakhs as business advance from customer.
  • 50 Lakhs as Advance against property Sale.
  • 25 Lakhs as security deposit.
  • 50 Lakhs from promoter or Relative.
  • 50 Lakhs from relative of a Director.
  • 50 Lakhs from a shareholder.

ABC Private Limited has sought your advice on the above means of finance.

ANSWER 1

– 5 Crore from Government Agency, Financial institutions, Banks or by way of Commercial Paper.

The amount received or borrowed from any government agency or FI or Bank or by way of CI is not covered under deposits.

Hence, company can raise money by way of above.

– 50 Lakhs by way of Share Application.

Company can raise money by way of issue of share if

a)    Section 42 compliance i.e. Private Placement.

b)    Allotment of share within 60 days of receipt of amount.

c)    If not allotted then termed as deposit.

– 50 Lakhs from Director by way of Loan.

Company can receive a loan from a Director provided

Director gives an undertaking to the company that the loan given is from own funds and not from borrowed money.

NOTE : Suppose if Director Net Worth is Rs 10 Crore and he has taken a loan for Rs 4 Crore then he is eligible to give loan to a company up to Rs 6 Crore.

– 50 Lakhs from issue of bonds and debentures.

Company can raise money by way of bonds and debentures provided

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Provided

a)    Amount is secured by a first charge against property;

OR

b)    Such bonds or debentures should be compulsorily convertible into shares within 5 years.

– 50 Lakhs from ICD.

Inter corporate deposits are not covered in the definition of deposits, hence company can use ICD as a means of finance.

– 25 Lakhs from Employees.

Yes, can be raised from employees provided amount received from employee doesn’t exceed by his total annual salary.

– 50 Lakhs as business advance from customer.

Yes, amount can be raised from customer however, such advance should be adjusted with 365 days from the date of receipt of advance.

– 50 Lakhs as Advance against property.

Yes it can be raised, however such amount should be adjusted against the property only.

– 25 Lakhs as security deposit.

Yes, as security deposits are out of the ambit of definition of deposits.

However, it is advised to receive security deposit under a specific agreement.

Eg :- Security deposit against rent, security deposit against supply of material or fulfillment of service.

– 50 Lakhs from promoter or Relative.

No, but if 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;

– 50 Lakhs from a shareholder.

No, Company cannot raise an amount from shareholders.

EXAMPLE 2

On 1st April 2014, following loans are standing outstanding in the books of M/s ABC Pvt Ltd. The board has sought your advice regarding the treatment of them.

1)    Rs 1 Crore from Director.

2)    Rs 50 Lac from shareholder.

3)    Rs 50 Lac from relative of a Director

4)    Rs 50 Lac as a business Advance.

5)    Rs 2 Crore as advance against property.

6)    Rs 1 Crore as share application money.

7)    Rs 2 Crore as ICD

8)    Rs 1 Crore from unknown sources or non relatives.

SOLUTION 2

The Companies Act 2013, states that in case any Deposit is outstanding in the books of accounts of company then same has to be reported to the ROC by 30th June 2014 and has to be repaid by 31st March 2015.

Here, the deposits are to be checked under the definition of Deposits as defined under Companies Act 1956 instead of Companies Act 2013.

We Will take each case separately Now:

1)   Rs 1 Crore from Director.

Any amount received from a Director is not a Deposit hence it need not be reported and can continue to stay in books. The loan can be renewed on the expiry of term, if there is no term then it is advisable to make a tenure for same.

2)   Rs 50 Lac from shareholder.

Amount received from shareholders was not covered in the definition of deposits under old Act; hence the same is not required to be reported.

However, Loan from shareholders cannot be renewed and has to be repaid back on expiry of term. If there is no term than a term contract should be made now.

3)   Rs 50 Lac from relative of a Director

Again as per old definition loan from relatives of Director were out of the ambit of the definition of Deposits, Hence no reporting required however same cannot be renewed and has to be repaid back on expiry of term. If there is no term than a term contract should be made now.

4)   Rs 50 Lac as a business Advance.

Business Advance is excluded from the deposits, hence there is no need to report the same and the amount can continue to appear in books.

The 365 days condition is not applicable here. However genuineness of the transaction is to be checked. It should be checked whether there are any transaction happening between the parties.

If not, then it is advisable to refund the amount.

5)   Rs 2 Crore as advance against property.

Same as above it is not a deposit, hence no reporting necessary.

6)   Rs 1 Crore as share application money.

Share Application money is not a deposit; hence there is no need to report the same.

However, all the pending application money appearing in books of Accounts should either be allotted or refunded back to the subscribers. As in many cases share application money is standing outstanding since many years and as per rules outstanding share application money should be deposited in Investor Protection Fund Account.

So it is advised either to refund or allot the amount in current financial year.

7)   Rs 2 Crore as ICD

ICD are exempt from the definitions of Old as well as New Companies Act, hence company can freely accept ICD.

8)   Rs 1 Crore from unknown sources or non relatives.

We must have faced a situation under some amount is outstanding in books of accounts, however the company is unable to ascertain to whom that amount belong to.

Such amount received or unexplained money or money standing in books from non relatives needs to be reported to ROC by 30th June 2014, as they get covered under the definition of Companies Act. The said amount is to be repaid by 31st March 2015.

(Author may be contacted at  mittalgaurav05@gmail.com)

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0 responses to “Acceptance Of Deposit – Section 73 to 76 Simplified”

  1. Raj Bhatia says:

    I believe private limited companies can accept loans from relatives since no section prohibits from doing so, if any learned and experienced person is up for a discussion please contact me at rajbhatiajob@gmail.com and we shall have a good healthy discussion. Thanks!

    • Dheeraj says:

      Amount received from members, directors & relatives prior to 1st April 2014 is not covered under deposit rules. But any amount received after that date has to be in accordance with Deposit rules.
      Im attaching the MCA circular link about the same.
      mca.gov.in/Ministry/pdf/General_Circular_5-2015.pdf

  2. a k says:

    how much amt of unsecured loans can a pvt co accept from share holders & associates

  3. Vijay Thakur says:

    Sir My Question is that director can give loan to pvt. ltd. company in Cash. If yes than how much.

    Thanks

  4. Vijay Thakur says:

    Sir my question is that is director can give to loan a pvt. ltd. company in cash. if yes then how much???

  5. Nitesh Agarwal says:

    hii
    my querry is that, if a pvt. company takes a loan from the shareholder, under an agreement that it wil be paid by the company after expiry of 5 year. is it covered under deposit?
    deposit definition is, any amount is taken by the co for not less then 6 month and not more than 36 month.
    if an amount is taken with in above period, only then it will be treated a deposit.
    so i m confused so plz make it very clear to me. and answered me above quision of me

  6. shantanu marathe says:

    hi have a gold jewellery busi in name of pvt ltd co. please advice if our co can take GOLD DEPOSITS from our CUSTOMERS for 6 months to 1 year. thks waiting for reply

    • GAurav says:

      @ Shantanu Marathe Ji,

      Sir, as per us they wont be covered under deposits as they are advance for goods and is not covered under deposits.

      However, the brand Tanishq has withdrawn there such schemes as a preventive measures as it might get covered under deposits.

      @ MK Jain :-

      Any deposit accepted as ICD wont be covered under deposits.
      however it might get covered under section 185 if Director are common.

      @ Sumeet

      sir section is applicable on these companies too but the limits are not known. Its a interesting issue and need some clarification n study.

      @ Neha

      No they wont get covered under this.

      @ Prabhat

      Yes public ltd companies didnt had such exemption and they cant accept such amounts. It is advisable to show such amount as share application money.

  7. Swapnil More says:

    Hi,

    It is observed that the words “any deposit accepted by a company before the commencement of this Act” under section 74(1) has led to two views –

    First, to consider as deposit (reason being the term deposit under this section should be construed as per new act and rules thereof)

    Second, to exclude from deposit (reason being these were not deposits at the time when these were received)

    Following conclusion can be drawn:
    To consider it as deposits and report in Form DPT-4, since the meaning of the term deposit will be as per section 2(31) read with rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014.

    For accepting deposits from members, the companies (public or private) need to fulfill the conditions as laid down in section 73(2).

    Also eligible company (can be public company only) can accept deposits from person other than its members subject to compliance of section 73(2).

    Deposits already accepted prior to commencement of 2013 Act, were not in line with requirements as specified and thus section 74(1)(b)requires repayment of such deposit within 1 year from the commencement of the 2013 Act i.e. by 31-03-2015.

    The intention of introduction of section 74(1) is to first report the deposits existing as on the commencement of the 2013 Act to the ROC in form DPT-4 by 30th June, 2014 (extended to 31-08-2014) and then repay such deposits by 31-03-2015, so that all deposits will be accepted as per the new provisions.

    This view can also be supplemented by the fact that legislature is giving enough time i.e. 1 year time to repay the deposits existing on 01-04-2014 to comply with new Act & New Rules.

    ROC may take this view.

    Thus, loan received by a Company from shareholder or director’s relative prior to commencement of 2013 Act, will be considered as deposit and required to be reported and repaid.

  8. M. K. Jain says:

    Dear Gaurav Ji
    Thanks for the detailed analysis. My quarry is regarding inter corporate deposit.
    Deposit is received by private limited co A from another private limited company B ( some directors are common).
    If co B is not a member of co A, will the deposit received be considered as inter corporate deposit ?
    If co B is a member of co A, will the deposit received be considered as inter corporate deposit ?
    Please advise.
    Thanks

  9. sumeet says:

    hi sir.

    i have little query about the non applicability of section 73-76 and related deposit rule. is sections applicable to company not having share capital? bcoz the given limits is based specifically on paid up capital and free reserve (is it include security premium also?)
    and if it is not applicable to abovesaid co. then wht is option available to company to raise fund without issue of share and borrowing?

    also in rule there is provision for short term deposit upto 10% of PC and Res. tenure is less then 6 months. is there any procedure for short term deposit.
    hope my query is tenable and i will get positive reply from u?

    regard,
    sumeet

  10. Neha Hinger says:

    Hi,

    We have Staff Deposit and Agent & Dealer Deposit in our Balance Sheet. Do we need to file it with ROC.

    Thanks

  11. Prabhat says:

    Mr. Gaurav / Mr. Balram ,
    I have one query pertaining to exemption in Deposit rules 1975.
    It provided exception for acceptance of amount from director or director relatives or members only for private co. and were not treated as deposits.
    Does that mean Public company did not enjoy these exemptions in old act even?
    I am missing something probably.
    Pls guide.

  12. Nikita says:

    Rule 19 of Chapter V of says that eligible companies are public companies….So where it is mention that the act and the rules applicable for private companies…Please clarify??

  13. CA Chandrakant Merchant says:

    Sir, please tell me what will be the consequences if form DPT not filed up to 30.06.2014.

  14. CA C K Merchant says:

    Consequences if form DPT 4 not filed up to 330 june

  15. GAurav says:

    @ balaram Ji.

    Sir,

    Please refer to rules of acceptance of deposits. Point No 19.

    Applicability of Section 73 & 74

    It states that In case of a company which had accepted or invited public deposits under the relevant provisions of the companies act 1956 and rules made under that act….

    From this language it is very much clear that definition of Deposits would be as defined under old Act.

    Your views are solicited.

  16. Balram Sharma says:

    @Gaurav Ji,

    Clarification to my views on Deposit,

    as you said, We have to file with ROC only deposits as per Companies Act 1956, does it mean Unsecured Loan/ Deposit taken from Shareholder before 01.04.2014 does not required to report. suppose if there was no tenure to repay this loan/deposit, can it be continue as it was before the commencement of Act, if it is so, then what is the relevance of Restriction imposed by Companies Act, 2013 and why would they have asked for filing Report with ROC. Because it is clearly mentioned in the Act, that a copy of circular along with statement for the purpose of raising deposits needs to file with registrar with in 30days before the date of issue of this circular, so new deposits/ renewal can be controlled by ROC through this filing.
    In my view, Deposits (as per Companies Act 2013) which have been taken by company before commencement of this act (out of ambit of Deposit definition at that time) need to report to ROC and repay with in a year.

    Your further clarification on the same will be appreciated.

    Warm Regards

  17. GAurav says:

    @ Srivani Ji,

    My personal view is that it would be termed as Deposits under section 73.

    As the view of legislature is to exclude the foreign loans but to include the loans from shareholders.

    It would be abuse of law i think.

  18. Srivani says:

    Hi,

    I have a query. If a Private Company accepts unsecured loans from its shareholder which is a foreign bodies corporate, will it fall under the definition of deposits as per Section 73 or can it claim exemption under Rule 2(c) (ii) of Deposits Rules, 2014 which says deposit does not include the loan accepted from foreign bodies corporate, foreign collaborators… Please clarify.

    Thanks

  19. GAurav says:

    @ Balram Sharma Ji,

    The Section specifically says “any deposit received before the commencement of this Act”

    As per this, what were deposits before the commencement of this Act.

    Deposits were what which were defined in companies Act 1956 and not this Act.

  20. Balram Sharma says:

    Hi,

    as per section 74 of Companies Act 2013, in respect of any deposit accepted by a company before commencement of this Act, the company shall file with in a period of 3 months with registrar a statement………
    in my opinion, meaning of deposit will be considered as defined in new act, any unsecured loan which was not covered in definition of deposit in earlier act, and which is deposit as per new act, need to disclose in the statement to be filed with registrar.

    and as per new rules, any loan taken from members will be considered as Deposit, and as per section 73 (2) of New Act, Deposit can be taken from member of the company subject to passing a resolution in General Meeting and other terms and conditions as prescribed.

    All of you are requested to share ur views on above subject.

  21. ca jaimin shah says:

    Thanks for valuable advise for such a hot cake topic

  22. GAurav says:

    Hi,

    Thank you for your kind words.

    Regarding your query, as I mentioned that on the amounts which are outstanding on 31st March, to classify them Deposits or not, the definition of deposits as defined under Companies Act,1956 would be applicable.

    And as per that definition there was no time limit mentioned for the business advance.

    hence it wont be classified as deposits.

  23. Jeevitha says:

    Hi,
    Thanks for the useful summary of provisions relating to deposits.

    In your example 2 sub division 4, can you kindly explain how the 365 days threshold provided in the Rule is not applicable.

    Thanks you

  24. GAurav says:

    Hi,

    As on 31st March 2014, the loan is outstanding from a Director who is also a shareholder. As per old definition it is allowed and need not be reported by 30th June.

    However, as he later resigned from the post then also i dont presume that there is any need to report the same, however the said loan amount cannot be renewed and is to be repaid as per the prescribed tenure.

    If there is no tenure for the same then it is advised to form a formal agreement with defined tenure in it.

    In case of no Tenure, such loans might be considered as deposits.

  25. CA Ravindra Manek says:

    Thanks for such a nice article. Timely and to the point post on a very important issue faced by all.

  26. Sneha says:

    What if we do not report to ROC? What are the penalties or so?

  27. Krutarth Shah says:

    Please provide source where it is mentioned that directors can provide loan only out of their own fund???
    Also provide rule/section where it is mentioned that company can not accept deposit from its own shareholders.

  28. Vinutha says:

    Hi,

    As per your opinion, the loan from shareholders existing before 31.03.2014 need not be reported as it was not considered as deposit under old act. I have a query where director (who is the shareholder) resigned as director on 01.04.2014. Whether the loan from such director to be reported as he has lost his directorship on 01.04.2014. Please clarify.

    Thanks

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