CA Umesh Sharma

Arjuna (Fictional Character): Krishna, many companies are worried, as they will have to submit new return about deposits and loans before 30th June 2014, as stated in New Companies Act 2013. It is said that there are very strict provisions and rules in new companies act.

Krishna (Fictional Character): Arjuna, change is todays need. Many provisions of Companies Act 1956 were needed to be changed. Further day by day business and professions are growing and thereby numbers of companies are also growing. Due to all these reasons Government came up with Companies Act 2013. As per new Companies Act, specified companies will have to file the return of deposit and loans (other than from directors) as on 31st March 2014 before 30th June 2014.    

Arjuna: What care is need in case of deposits and loans in new Companies Act?

Krishna: Arjuna, In Companies Act 1956 the definition of deposits is very broad, in that company was able to take loans from the shareholders, relatives. But as per New Companies Act, private limited company and non-eligible public companies cannot take loans or deposits from anyone other than the directors.

  1. As above provision is stated in new companies act, companies will have to mention in the return all deposits accepted by the company.
  2. Share application money received but not allotted within 60 days will be treated as deposits.
  3. Any money received as advance in the course of ordinary business shall be treated as deposit if goods or services are not provided within 365 days of receipts.
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Arjuna: Krishna, Which receipts will not be counted as deposits?

Krishna: Arjuna,broadly following money received will not be treated as deposits:

  1. Money received from central or state Government.
  2. Loans taken from bank
  3. Any amount received from any other company
  4. Amount received from Public Financial Institutions
  5. Amount received as security deposit for the performance of the contract for supply of goods or provision of services.

Arjuna: Krishna, if the company is having deposits which does not fit in the definition of deposits as stated in new companies act then what they should do?

Krishna: Arjuna, if any new act or rules comes in force government gives sufficient time to change. For these deposits government has given time up to March 2015. The Companies should repay the deposits which do not fit in the definition before March 2015. For e.g. if a company is having loan from the relative of director of Rs. 10 Lakh as on March 2014 then it should be repaid before March 2015. This provision will create financial problem for many companies. Further those who have taken entries will also suffer.

Arjuna: Krishna, what will happen if these deposits are not repaid before March 2015?

Krishna: If these deposits or loans are not repaid then fine may range from Rs. 1 Cr to 10 Cr. Further the officer in default may be fined with Rs. 25 Lakh to Rs. 2 Cr. or 7 years’ imprisonment or both.

Arjuna: Krishna, What one should learn from these provisions of New Companies Act?

Krishna: Arjuna, many companies have taken loans or deposits from the relatives, shareholders. Further some companies have taken loans or deposits and disappeared. To restrict these practices these provisions has arrived. In today’s world many shows need of money to other and takes money and doesn’t refund it easily. The one who gives loan suffers than the one who takes the loan. To control these practices these strict provisions are initiated as now companies can take loans from the directors only. It means one should demand money looking at his capacity only. We have the live example of a big company accepting loans and deposits, and now facing legal issues in Supreme Court. Hence one should always accept money from others after due care, otherwise relations will get spoil. Excessive Loans and Deposit are like Cancer, they will destroy business and then the entrepreneur.

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0 responses to “Be Alert! Companies watch out provisions of loans & deposits or else repay it!”

  1. Mayank D says:

    What if business fails, and a pvt ltd company can not repay unsecured loan? Are promoters personally liable?
    Pls pls reply..

  2. Dona says:

    Thanks for sharing such an informative & innovative post. Very good drafting.

  3. Parag says:

    Unsecured loan from Partnership Firm will covered under new Companies Act term for Deposit??? Can I keep the same or i have to Pay it before prescribed limit?? Do i need to disclose it in Form and need to File the same to ROC??
    I have Same question for loan from HUF also..Please guide me soon.

  4. Shamsher says:

    Convert Pvt ltd companies into partnership. Draconian laws have been passed. Small and medium business will get screwed if they persist with LTD. appendage.

  5. umesh sharma says:

    Good Rajesh, thats why, there is proposal to change the above provision before the Parliament in this session. Hope things will change. Thanks for your comments.

  6. Dipak J Shah says:

    There is one case U/s 58 A ( 0 ) pending Before Company Law Board Northern Region for more than 5 years. Notice was issued no order has been passed nor issue of fresh hearing notiice so far!!! The name of the Company is Jindal Steel and Powers Limited !! How can be managed you all know!!!!
    Shah D J

  7. umesh sharma says:

    Thanks dear Devendra Metha for your valuable comments.

  8. CA Padmanabhan says:

    Money requirements of companies always cannot be met from banking and regular financial channels as these institutions has their own schemes and parameters for lending. In such a case companies will have only the option for borrowing from any person who is willing. The current restrictions will result in many other violations eg: – When funds are required for paying some high amounts of tax demands, Statutory payments, Salary to staff, gratuity,PF etc or repayment of installments to banks etc. If directors cannot arrange private funds to pay these statutory dues where business receipts are not as expected, they will be in trouble.

  9. Rajesh, Mumbai says:

    It seems that Author may not be aware of ground reality.He should be aware that relatives and shareholders give loans to private company because they trust them more than Banks, more than government, get better interest, and are more comfortable with them. On the other side, private companies get such loans on reputation whenever required which help them to save on costs and grow business.
    In India there may be a million private companies and most of them runs on loans. If few companies (may be 1 out of 1000) are found to have committed fraud, remaining 999 should not be punished making such laws that will render them to close their business.

    Lawmakers indirectly wish all private companies to wind up / close the business. Can they make even a Largest Bank of India to pay all deposits in one year without taking further deposits? Leave aside the Bank, Can Government of India repay all loans (taken from various sources) in one year. See the penalty of Rs 1 crore to 10 crore if loans not paid before 31st Mar.2015 and also imprisonment up to seven years. They do not even know that In India 90% of private companies will not be having a capital of 1 crore and they are daring to impose a penalty of minimum 1 crore.
    I am sure if this provision is not reversed and earlier situation is not restored, more than 50% private companies will close or convert into partnership firms.

  10. Devendra Mehta says:

    The rationale explained by Krishna is simply ridiculous. I think Krishna has also changed colour – from justice to tyranny. A Private company does not have access to public deposit route. It obtains loans from its directors or share holders or their relatives. To impose restrictions on private companies from accepting loans is simply choking its business to death. The provisions are simply irrational and aimed to kill private entrepreneurship in India. Its gives immense powers to officers of MCA to loot the businessman as well as professionals. With such provisions in place, it is better to quit India and do business elsewhere in the world. These provisions are totally against the Modi government’s avowed policy.

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