Section 74– Contrary view on Loan taken before 31.03.2014 from directors, their relatives and members of a private company including the amounts stated in (i) to(xii) of clause (b) of rule 2 of the Companies (Acceptance of Deposits) Rules,1975 on or before the commencement of companies Act,2013. In the opinion of the Author such amounts are not deposits and so are not covered by Section 74 of Companies Act,2013.
Dear Professional colleagues,
Have a serious look into what is stated herein with your skillful application of mind. Section 74 of the Companies Act, 2013, provides that any deposit accepted before the commencement of the Companies Act,2013, needs to be repaid/refunded on or before 31st March,2015. The said section also states that a return has to be filed with RoC in respect of existing deposits. Many professionals are posting on various websites saying that due dates for refund of deposits and filing of return with RoC are nearing hence they are advising for compliances within the due dates. They are also pointing the attention of the readers to the penalty in case of non compliance with said Section 74. The penalty is minimum Rs.1crore and maximum Rs. 10 crore.
In the backdrop of above let us consider the following question:
Are all unsecured loans/amounts received on or before commencement of the companies Act,2013, by private companies from its directors, their relatives and its members, repayable on or before 31st March,2015 as stipulated by Section 74 particularly in view of the definition of Deposit in new Act?
Applicable provisions are:
1. Section 2(31) of the Companies Act,2013 which 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.” [It is pertinent to mention here that the Central Government in consultation with RBI has notified Companies (Acceptance of Deposits) Rules 2014 according to which now even amounts received from relatives of directors and members are deposit]
2. Section 74 of the companies Act,2013 the relevant portion of which is as under:
“(1) Where in respect of any deposit accepted by a company before the commencement of this Act, the amount of such deposit or part thereof or any interest due thereon remains unpaid on such commencement or becomes due at any time thereafter, the company shall-
(b) repay within one year from such commencement or from the date on which such payments are due, whichever is earlier.”
3. Rule 2(b) of the Companies (Acceptance of Deposits) Rules,1975 the relevant provision of which is as under:
“ deposit” means any deposit of money with, and includes any amount borrowed by, a company, but does not include–
(ix) any amount received by a private companies from a person who, at the time of the receipt of the amount, was a director, relative of director or member:…………………”
Analysis of the above stated provisions:
(a) Section 74(1) of the Companies Act, 2013 is using the words “ any deposit accepted by a company before the commencement of this Act.” Thus before the Companies Act,2013 if a company has accepted any deposit under the Companies Act,1956(which was in existence prior to 2013 Act), the same needs to be repaid as per the mandate of section 74(1)(b) on or before 31st March,2015.
(b) The Companies Act,1956 which is repealed now did not define “Deposit”. But the Companies (Acceptance of Deposits) Rules,1975 which were under section 58A of the 1956 Act defined “ Deposit”. As per the definition in the above rules the amounts received from directors, their relatives and the members of private companies were not deposits in view of the clear wording “ but does not include…” Thus all amounts which fall in (i) to (xii) of clause (b) of rule 2 of Companies (Acceptance of Deposits) Rules,1975 if accepted then were not deposit as they were specifically excluded from the definition of Deposit. A company is under an obligation to repay any deposit it accepted under the Companies Act,1956 not all the amount which were not deposit then. In short the amount to be repaid on or before 31st March,2015 has to be deposit when it was accepted in view of the provision that “any deposit accepted by a company before commencement of this Act.” There can be a counter argument that the Deposit referred to in section 74 means the Deposit as per the new Act which includes loans from relatives of directors, their relatives and members but then that argument does not seem to be surviving as the definition of Deposit as in new Act shall take effect only after commencement of the new Act whereas the Section 74 of new Act is talking of deposit accepted before the commencement of new Act. So what was not deposit under the old Act cannot be covered by Section 74 of New Act.
Conclusion:- In view of the above, according to me, all the monies received from directors, their relatives and members of a private company including the amounts stated in (i) to(xii) of clause (b) of rule 2 of the Companies (Acceptance of Deposits) Rules,1975 on or before the commencement of companies Act,2013 are not required to be repaid as they were not deposit when accepted. Crux of Section 74 lies in the fact that when the amount received whether the same was deposit or not.
The provisions of Section 74 of the Companies Act are applicable only to deposits which were accepted in accordance with the provisions of section 58A of the Companies Act, 1956 read with Companies (Acceptance of Deposits) Rules,1975.
Unfortunately due to misinterpretation of Section 74 many unnecessary returns have been filed with RoC and the same is being pressed to be filed again.
Your views and discussion are invited.