Article explains Provisions related to Deposit under Companies Act 2013, Meaning of Deposit, Reason for introducing provisions relating to deposits in Companies Act, Difference Between a Loans and Deposits under Companies Act 2013, Provisions related to Accepting of Deposits from Members and Provisions related to Invitation of Deposits from Public under Companies Act 2013.
According to Webster dictionary Deposit means to place especially for safekeeping or as a pledge. In simple words, Deposit means when you safe keep something with someone. Companies Act, 2013 defines deposit as “deposit” includes any receipt of money by way of deposit or loan or in any other form by a company but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.
The definition of Deposit as per the Companies Act, 2013 is an inclusive one, it states that any amount received by a Company in any form shall be treated as a deposit. Here, the question arises whether capital contributed by shareholders or loans taken by the company shall be treated as a deposit? Before answering this question we will have to look into the Companies Acceptance of Deposit Rules. If any money received by the company falls under the conditions mentioned in the rules than such money shall not be treated as deposits.
Let me clear you that the Security Deposit mentioned in the Balance Sheet under the heading loans and advances is different from Acceptance of Deposits. A Security Deposit means the money a company gives as to any other person, (for example, a landlord or seller of the property) to secure the property against any damages which may happen in the future. It is an asset to the Company and Comes under long term loans and advances. Don’t confuse deposits with security deposits.
One may say that what if the Company receives any amount from other parties as a security deposit? Shall it be considered as Deposits? The answer is Yes! but subject to the conditions mentioned in the rules.
As per the above discussion, it is clear that for deciding whether a receiving is a deposit or not we will have to take into consideration three components. The first component is receiving money, the Second component is any money borrowed by the company shall be treated as a deposit, the third component is excluding the amount received which is mentioned in the Companies Acceptance of Deposits rules.
The details of money received by a company that shall not be considered as a deposit can be seen from the following link http://ebook.mca.gov.in/Actpagedisplay.aspx?PAGENAME=18773.
In Companies Act, 2013 the provisions for acceptance of deposits are controlled by Section Section 73, Section 74, Section 75, Section76 and Section 76A. There is a whole chapter dedicated to Deposits in Companies Act, 2013. That shows the importance of Deposits in the business world. Now let us understand why the government has inserted such provisions in the earlier as well as the present Companies Act.
Deposits from the public became a popular source of the fund since the 1970’s. There were two advantages of receiving deposits by a company. First, the interest payable was lower than the interest payable on loans from the bank and financial institutions. Second is that the deposit is an unsecured debt and no security by way of mortgage is required to be provided.
In many cases deposits so taken by the companies had not been refunded on the due dates either because the companies had gone into liquidation or the funds were depleted to such an extent that the companies were not in a position to refund the deposits. It was therefore considered necessary to control such activities.
In order to regulate such activities more effictively, two sections (S.58A & 58B) were inserted by the Companies (Amendment) Act, 1974. Now, the task of regulating the acceptance of deposits by ‘non-banking non-financial companies’, i.e., companies engaged in manufacturing, mining, trading etc. activities, vests with the Central Government, which frames rules and regulations to this effect in consultation with the Reserve Bank of India.
With a view to further safeguarding the interest of the depositors, the issue of an advertisement including a statement showing the financial position of the company was made obligatory.
Remember Loans and Deposit are not synonyms. If a loan and deposit were synonyms there would be no need for making a difference between them. There is a thin line of difference between a deposit and a loan. Deposits and Loans both include borrowing of money. We will have to understand the intention of borrowing for deciding whether a receiving of money is a loan or deposit. We will have to understand that Deposit is for the benefit of the Depositor. The Depositor gets benefitted by earning interest. Ordinarily, though not always, in the case of a deposit, it is the depositor who is the prime mover. Whereas, In the case of loan the borrowing is primarily for the benefit of the borrower. The secondary benefit is received by the lender by way of interest.
The other more important distinction is in relation to the obligation to return the amount so received. In the case of a deposit which is payable on demand, the deposit would become payable when a demand is made. In the case of a loan, however, the obligation to repay the amount arises immediately on receipt of the loan.
Accepting of Deposit from members is mentioned in Section 73 of Companies Act, 2013. A company may 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. A company can accept deposits from members by passing an ordinary resolution and complying with the Companies Acceptance of Deposits rules.
A public company may invite deposits from persons other than its members subject to compliance with the requirements provided in sub-section (2) of section 73 and subject to such rules as the Central Government may, in consultation with the Reserve Bank of India, prescribe.
Such a company shall obtain the rating from a recognized credit rating agency. The rating shall be obtained every year during the tenure of the deposit.
Every company accepting secured deposits from the public shall within thirty days of such acceptance, create a charge on its assets.
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