Deposits has been vital source of funding for companies in India. Initially only public companies were allowed to accept deposits, but later through various amendments, Private Limited Companies can now accept deposits from its members with minimum regulatory compliance.
Section 2(31) of Companies Act, 2013,”deposit” includes any receipt of money by way of depositor 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.
Deposits may be of two types-
Before preceding for types of deposits in details lets first understand meaning of Deposits
“Deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include –
iii. Any amount received as a loan or facility from any banking company or banking institution;
vii. Any amount received and held towards subscription money, share application money or advance towards allotment of securities pending allotment.
Explanation – For the purposes of this sub-clause, it is hereby clarified that –
If the securities, for which application money was received, can’t be allotted within 60 days from the date of receipt of the application money, such application money is to be refunded to the subscribers within 15 days from the date of completion of 60 days. If not refunded, such amount shall be treated as a deposit under these rules.
viii. Any amount received from a director of the company or a relative of the director of the Private company:
Provided that the director of the company or relative of the director of the private company furnishes to the company at the time of giving the money, a declaration in writing that the amount is not borrowed money.
ix Any amount raised by issue of Unsecured, Listed, Non-Convertible Debentures;
xii. Any amount received in the course of, or for the purposes of, the business of the company;
(a) As an advance for the supply of goods or provision of services provided that such advance is appropriated against supply of goods or provision of services within a period of 365 days from the date of acceptance of such advance.
(b) As an advance received in connection with consideration for an immovable property under an agreement or arrangement. Provided that such advance is adjusted against such property in accordance with the terms of agreement or arrangement;
(c) As a security deposit for the performance of the contract for supply of goods or provision of services;
(d) As an advance received under long term projects for supply of capital goods except those covered under item (b) above:
(e) As an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement;
(f) As an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;
(g) As an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications;
xiii. 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;
xiv. Any amount accepted by a Nidhi company in accordance with the rules made under Section 406 of the Act.
xvi. Any amount received by the company under any collective investment scheme;
xvii. An amount of Rs. 25 lakh or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person.
xviii. Any amount received by a company from Alternate Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts, Real Estate Investment Trusts and Mutual Funds registered with the Securities and Exchange Board of India in accordance with regulations made by it.
The provisions of Deposits are covered under the following sections and their relevant rules under the Companies Act, 2013 –
Section 73 – Prohibition on Acceptance of Deposit from Public.
Section 74 – Repayment of deposits etc. accepted before Commencement of CA, 2013
Section 75 – Damages for Fraud
Section 76 – Acceptance of deposit from public by certain Companies
Section 76A – Punishment for contravention of Section 73 or Section 76.
On a very first note, Section 73 prohibits every company (except banking company, NBFCs and) from inviting, accepting or renewing deposits from the public. However, such companies can accept deposits from its members subject to the conditions specified under the Act.
Eligibility: A Public Company shall fulfill following two conditions to accept deposits-
Consent of Shareholders through special resolution is mandatory.
But if the company is accepting deposits within the limit of Section 180(1)(c) i.e. if the total borrowing of the Company doesn’t exceed aggregate of its paid-up share capital, free reserves and securities premium account, then the consent of shareholders through Ordinary Resolution is sufficient.
A public company can accept deposits if it fulfills the following conditions-
Private Limited Companies can accept deposit after obtaining members approval in the general meeting. There are certain conditions to be followed for such acceptance as under-
The maximum limit for acceptance of deposit from its members shall not be applicable on the following classes of Private Companies: