Acceptance of Deposits by Companies – CA Inter Law Study Material

Acceptance of Deposits by Companies – CA Inter Law Study Material is designed strictly as per the latest syllabus and exam pattern.

Acceptance of Deposits by Companies – CA Inter Law Study Material

Question 1.
Soorya Ltd. has raised ₹ 2,00,000 through issue of non-convertible debenture not constituting a charge on the assets of the company and listed on a recognised stock exchange as per applicable regulations made by Securities and Exchange Board of India. Whether the amount so received can be treated as deposits?
Or
Comment quoting relevant provisions whether the following amounts received by a company will be considered as deposits or not: ₹ 5,00,000 raised by Rohit Limited through issue of non-convertible debentures not constituting a charge on the assets of the company and listed on a recognised stock exchange as per the applicable regulations made by the Securities and Exchange Board of India.
[MTP-Oct 21]
Answer:
Amounts not considered as deposits:

Sec. 2(31) of the Companies Act, 2013 defines the term deposit so as to include 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 RBI.

Rule 2(1)(c) of Companies (Acceptance of Deposit) Rules, 2014 prescribes certain categories of amounts which are not considered as deposits. In accordance with sub-clause (ixa), any amount raised by issue of non-convertible debenture not constituting a charge on assets of the company and listed on a recognized stock exchange as per applicable regulations made by SEBI is not considered as deposits.

Conclusion: Amount raised by Soorya Ltd falls under sub-clause (ixa) of Rule 2(l)(c), hence will not be considered as deposit.

Question 2.
₹ 1 2,50,000 received from Mr. Raghu, an employee of the company who is drawing annual salary of ₹ 2,00,000 under a contract of employment with the company in the nature of non-interest bearing security deposit Whether the amount so received can be treated as deposits?
Or
Comment quoting relevant provisions whether die following amounts received by a company will be considered as deposits or not: ₹ 2,00,000 received by Rishi Limited from its employee Mr. Tarun, who draws an annual salary of ₹ 1,50,000, as a non-interest bearing security deposit under a contract of employment [MTP-Oct 21, April 22]
Answer:
Amounts not considered as deposits:

Rule 2(1)(c) of Companies (Acceptance of Deposit) Rules, 2014 prescribes certain categories of amounts which are not considered as deposits. In accordance with sub-clause (x), any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest bearing security deposit is not considered as deposits.

Conclusion: Amount raised by the company will be considered as deposit in terms of sub-clause (x) of the Rule 2(1)(c) as amount received is more than the annual salary under a contract of employment with the company.

Question 3.
Enumerate the amounts which when received by a company in the ordinary course of business are not to be considered as deposits.
Answer:
Amounts which when received by a company in the ordinary course of business are not to be considered as deposits:
As per Rule 2(1)(c)(xii) of Companies (Acceptance of Deposits) Rules, 2014, following amounts if received by a company in the course of, or for the purposes of, the business of the company, shall not be considered as deposits:

(a) Any amount received as an advance for the supply of goods or provision of services accounted for in any manner whatsoever to be appropriated within a period of 365 days from the date of acceptance of such advance.
However, in case any advance is subject matter of any legal proceedings before any court of law, the time limit of 365 days shall not apply.

(b) Any amount received as advance in connection with consideration for an immovable property under an agreement or arrangement. However, such advance is required to be adjusted against such property in accordance with the terms of agreement or arrangement.

(c) Any amount received as security deposit for the performance of the contract for supply of goods or provision of services.

(d) Any amount received as advance under long term projects for supply of capital goods except those covered under item (b) above.

(e) Any amount received as an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement, if the period for providing such services does not exceed the period prevalent as per common business practice or 5 years, from the date of acceptance of such service whichever is less;

(f) Any amount received as an advance and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;

(g) any amount received as an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications;

However, if the amount received under items (a), (b) and (d) above becomes refundable (with or without interest) due to the reasons that the company accepting the money does not have necessary permission or approval, wherever required, to deal in the goods or properties or services for which the money is taken, then the amount received shall be deemed to be a deposit under these rules.

Further, for the purposes of this sub-clause the amount shall be deemed to be deposits on the expiry of 15 days from the date they become due for refund.

Question 4.
Define the term ‘deposit’ under the provisions of the Companies Act, 2013 and comment quoting relevant provisions whether the following amounts received by a company will be considered as deposits or not:

(i) ₹ 5,00,000 raised by Rishi Confectionaries Limited through issue of non-convertible debentures not constituting a charge on the assets of the company and listed on a recognised stock exchange as per the applicable regulations made by the Securities and Exchange Board of India.
(ii) ₹ 2,00,000 received by Raja Yarns Limited from its employee Mr. T, who draws an annual salary of ₹ 1,50,000, as a non-interest bearing security deposit under a contract of employment.
(iii) ₹ 3,00,000 received by a private company from one of the relatives of a Director. The said
relative has furnished a declaration that the amount was received by him from his mother as a gift. [Nov. 19 (6 Marks)]

Answer:

Meaning of the term Deposit:
As per Sec. 2(31) of the Companies Act, 2013, the term ‘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 RBI.

Rule 2(1)(c) of the Companies (Acceptance of Deposit) Rules, 2014 states various amounts received by a company which will not be considered as deposits. In accordance with these Rules, answers to the given situations will be as under:

₹ 5,00,000 raised by Rishi Confectionaries Limited through issue of non-convertible debentures
not constituting a charge on the assets of the company and listed on recognised stock exchange as per the applicable regulations made by the SEBI, will not be considered as deposit in terms of sub-clause (ixa) of Rule 2(1)(c).
₹ 2,00,000 received by Raja Yarns Limited from its employee Mr. T, who draws an annual salary of ₹ 1,50,000, as a non-interest bearing security deposit under a contract of employment will be considered as deposit in terms of sub-clause (x) of Rule 2(1) (c) as the amount received is more than his annual salary of ₹ 1,50,000.
₹ 3,00,000 received by a private company from one of the relatives of a Director. When the relative furnishes a declaration that the said amount was received by him from his mother as a gift, then it will not be considered as deposit in terms of sub-clause (viii) of Rule 2(1)(c).

Any amount given by a relative of a director of a private company shall not be considered as deposit if the relative furnishes a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others. Thus, the amount given to the private company out of gifted money by one of the relatives of a director is not a ‘deposit’.

As an additional requirement, the company shall disclose the details of money so accepted in the Board’s report.

Question 5.
RS Ltd. received share application money of ₹ 50.00 Lakh on 01.06.2022 but failed to allot shares within the prescribed time limit.

The share application money of ₹ 5.00 Lakh received from Mr. Khanna, a customer of the Company, was refunded by way of book adjustment towards the dues payable by him to the company on 30.07.2022. The Company Secretary of RS Ltd. reported to the Board that the entire amount of ₹ 50.00 Lakh shall be deemed to be ‘Deposits’ as on 31.07.2022 and the Company is required to comply with she provisions of the Companies Act, 2013 applicable to acceptance of deposits in relation to this amount.

You are required to examine the validity of the reporting of the Company Secretary in the light of the relevant provisions of the Companies Act 2013. [Jan. 21 (4 Marks)]

Answer:

Validity of reporting of Book Adjustment as deposit:

As per sub-clause (vii) of Rule 2(1)(c) of the Companies (Acceptance of Deposits} Rules, 2014, any amount received and held pursuant to an offer made in accordance with the provisions of the Companies Act, 2013 towards subscription to any securities, including share application money or advance towards allotment of securities, pending allotment, so long as such amount is appropriated only against the amount due on allotment of the securities applied for, shall not be considered as deposit.

However, if the securities for which application money or advance for such securities was received cannot be allotted within 60 days from the date of receipt of the application money or advance for such securities and such application money or advance is not refunded to the subscribers within 15 days from the date of completion of 60 days, such amount shall be treated as a deposit under these rules.

Further, it is clarified that any adjustment of the amount for any other purpose shall not be treated as refund.

In the given question, RS Ltd. has received ₹ 50 lakh as share application money on 01.06.2022. It failed to allot shares within the prescribed limit. Further, on 30.07.2022 the company adjusted the amount of ₹ 5 Lakhs received from Mr. Khanna (a customer of the company], by way of book adjustment towards the dues payable by him to the company.

Conclusion: In the light of the facts of the question and related provisions of law, following conclusion may be drawn:

(i) If such application money or advance is not refunded to the subscribers within 15 days from the date of completion of 60 days, such amount shall be treated as a deposit. In the question, the prescribed limit of 60 days will end on 31.07.2022 and the company has 15 more days to refund such application money to the subscribers. Otherwise, after lapse of such 15 days, the amount not so refunded will be treated as deposit. Hence, the Company Secretary of RS Ltd. is not correct in treating the entire amount of ₹ 50 lakh as ‘Deposits’ on 31.07.2022.

(ii) Any adjustment of the amount for any other purpose shall not be treated as refund. Thus, the amount of ₹ 5 Lakhs adjusted against payment due to be received from Mr. Khanna, cannot be
treated as refund.

Question 6.
The Promoters of Jayshree Spinning Mills Limited contributed in the shape of unsecured loan to the company in fulfilment of the margin money requirements stipulated byState Industries Development Corporation Ltd. (SIDCL) for granting loan. In the light of the provisions of the Companies Act, 2013 and Rules made thereunder whether the unsecured loan will be regarded as Deposit or not; What will be your answer in case the entire loan obtained from SIDCL is repaid? [July 21 (4 Marks), MTP-April 22]
Answer:
Treatment of unsecured loan as deposit:
As per Rule 2(1)(c) of the Companies (Acceptance of Deposits] Rules, 2014, 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, shall not be considered as deposit, subject to the fulfilment of following conditions:

(a) the loan is brought because 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) such exemption shall be available only till the loans of financial institution or bank are repaid and not thereafter.

Conclusion: Unsecured loan contributed by promoters of jayshree Spinning Mills Limited will not be regarded as deposit as the unsecured loan is brought because of the stipulation imposed by the SIDCL and the loan is provided by the promoters themselves. In case the entire loan obtained from SIDCL is repaid, then the unsecured loan provided by promoters of Jayshree Spinning Mills Limited will be regarded as deposit.

Question 7.
Vrinda Limited is a company manufacturing orange and strawberry candies for kids. Now, the company wants to expand its business and start the manufacturing of 10 more types of candies. The company has raised ₹ 1 crore through the issue of non-convertible debentures not constituting a charge on the assets of the company and listed on a recognised stock exchange as per the applicable regulations made by the Securities and Exchange Board of India. Advise, whether the above amount of ₹ 1 crore will be considered as deposit? [RTP-May 22]
Answer:
Meaning of term deposit:
As per sub-clause (ixa) of Rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules, 2014, any amount raised by issue of non-convertible debentures not constituting a charge on the assets of the company and listed on recognised stock exchange as per the applicable regulations made by the Securities and Exchange Board of India, are not considered as deposit.

Hence, ₹ 1 crore raised by Vrinda Limited will not be considered as deposit in terms of sub-clause (ixa) of Rule 2 (1) (c).

Question 8.
Explain the provisions for ‘Appointment of Trustee for Depositors’ under the Companies Act, 2013 read with the ‘Acceptance of Deposit’ Rules, 2014. [May 18 (6 Marks)]
Or
Who all cannot be appointed as a trustee for the depositors. Enumerate with reference provisions to the Companies Act, 2013 read with the ‘Acceptance of Deposits’ Rules, 2014. [MTP-Oct, 21]
Answer:
Appointment of Trustee for Depositors:
Rule 7 of the Companies (Acceptance of Deposits) Rules, 2014 deal with the provisions related to debenture trustee. Accordingly:

One or more trustees for depositors need to be appointed by the company for creating security for the deposits.
A written consent shall be obtained from the trustees before their appointment.
A statement shall appear in the circular or advertisement with reasonable prominence to the effect that the trustees for depositors have given their consent to the company for such appointment.
The company shall execute a deposit trust deed in Form DPT-2 at least seven days before issuing the circular or circular in the form of advertisement.
No person including a company that is in the business of providing trusteeship services shall be appointed as a trustee for the depositors, if the proposed trustee:

(a) is a director, KMP or any other officer or an employee of the company or of its holding, subsidiary or associate company or a depositor in the company;
(b) is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such holding company;
(c) has any material pecuniary relationship with the company;
(d) has entered into any guarantee arrangement in respect of principal debts secured by the deposits or interest thereon;
(e) is related to any person specified in clause (a) above.

No trustee for depositors shall be removed from office after the issue of circular or advertisement and before the expiry of his term except with the consent of all the directors present at a meeting of the board. In case the company is required to have independent directors, at least one independent director shall be present in such meeting of the Board.

Question 9.
State the procedure to be followed by companies for acceptance of deposits from its members according to the Companies Act, 2013. What are the exemptions available to a private limited company? [Nov. 18 (6 Marks)]
Answer:
Acceptance of deposits by a company from its members:
As per Sec. 73(2) of the Companies Act, 2013, a company may, subject to the passing of a resolution in general meeting and subject to prescribed rules, accept deposits from its members, subject to the fulfilment of the following conditions, namely:

(a) Issuance of a circular to its members including therein a statement showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in such form and in such manner as may be prescribed;

(b) Filing a copy of the circular along with such statement with the Registrar within 30 days before the date of issue of the circular;

(c) Depositing, on or before the 30th day of April each year, such sum which shall not be less than 20% of the amount of its deposits maturing during the following financial year and kept in a scheduled bank in a separate bank account to be called deposit repayment reserve account;

(d) Certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits and where a default had occurred, the company made good the default and a period of 5 years had lapsed since the date of making good the default; and

(e) Providing security, if any for the due repayment of the amount of deposit or the interest thereon including the creation of such charge on the property or assets of the company.

Every deposit accepted by a company shall be repaid with interest in accordance with the terms and conditions of the agreement. Where a company fails to repay the deposit or part thereof or any interest thereon, the depositor concerned may apply to the Tribunal for an order directing the company to pay the sum due or for any loss or damage incurred by him as a result of such non-payment and for such other orders as the Tribunal may deem fit.

Exemption to certain private companies:

Clauses with respect to issue of circular, filing the copy of such circular with the Registrar, depositing of certain amount and certification as to no default committed, shall not apply to a private company:

which accepts from its members monies not exceeding 100% of aggregate of the paid-up share capital, free reserves and securities premium account; or
which is a start-up, for 5 years from the date of its incorporation; or
which fulfils all of the following conditions, namely:

(a) which is not an associate or a subsidiary company of any other company

(b) if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid-up share capital or ₹ 50 crore, whichever is lower; and

(c) such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under this section

However, such companies shall file the details of monies accepted to the Registrar in Form DPT-3.

Question 10.
NIM Private Limited is engaged in die business of manufacturing household plastic goods. The books of account of the company provides that aggregate of its paid-up capital, free reserves and security premium account is % 35.00 lakh. The company intends to accept deposits from its members to the extent of ₹ 35.00 lakh. Advise the company whether it can do so. Support your answer as per the provisions of the Companies Act, 2013. [MTP-March 21]
Answer:
Acceptance of deposits from members:

As per Sec. 73(2) of the Companies Act, 2013 read with Rule 3(3) of the Companies (Acceptance of Deposits) Rules, 2014, a company shall accept any deposit from its members, together with the amount of other deposits outstanding as on the date of acceptance of such deposits not exceeding 35% of the aggregate of the paid-up share capital, free reserves and securities premium account of the company.

It is provided that a private company may accept from its members monies not exceeding 100% of aggregate of the paid-up share capital, free reserves and securities premium account and such company shall file the details of monies so accepted to the Registrar in Form DPT-3.

Conclusion: Since N1M Private Limited is a private company hence it may accept monies to the extent of ₹ 35 lakh as deposits from its members.

Question 11.
Ashish Ltd. having a net worth of ₹ 80 crores and turnover of ₹ 30 crores wants to accept deposits from public other than its members. Referring to the provisions of the Companies Act, 2013, state the conditions and the procedures to be followed by Ashish Ltd. for accepting deposits from public other than its members. [RTP-May 19]
Answer:
Acceptance of deposit from public:

As per Sec. 76 of the Companies Act, 2013, a public company, having net worth of not less than ₹ 100 crore or turnover of not less than ₹ 500 crore, can accept deposits from persons other than its members subject to compliance with the requirements provided in Sec. 73(2) and subject to such rules as the C.G. may, in consultation with the RBI, prescribe.

Such a company shall be required to obtain the rating from a recognised credit rating agency for informing the public the rating given to the company at the time of invitation of deposits from the public which ensures adequate safety and the rating shall be obtained for every year during the tenure of deposits.

Every company accepting secured deposits from the public shall within 30 days of such acceptance, create a charge on its assets of an amount not less than the amount of deposits accepted in favour of the deposit holders in accordance with such rules as may be prescribed.

Conclusion: Since, Ashish Ltd. has a net worth of ₹ 80 crores and turnover of ₹ 30 crores, which is less than the prescribed limits, hence, it cannot accept deposit from public other than its members. If the company wants to accept deposits from public other than its members, it has to fulfil the eligibility criteria of net worth or turnover or both and then the other conditions as stated above.

Question 12.
State, with reasons, whether the following statements are ‘True or False’?

(i) ABC Private Limited may accept deposits from its members to the extent of K 50.00 lakhs, if the aggregate of its paid-up capital, free reserves and security premium account is t 50.00 lakhs.
(ii) A Government Company, which is eligible to accept deposits under section 76 of the Companies
Act, 2013, cannot accept deposits from public exceeding 25% of the aggregate of its paid-up capital, free reserves and security premium account. (May 19 (2 Marks), RTP-Nov. 20, MTP-April 21]

Answer:

Acceptance of deposits:

(i) Given statement that ABC Private Limited may accept deposits from its members to the extent of ₹ 50.00 lakhs, if the aggregate of its paid-up capital, free reserves and security premium account is ₹ 50.00 lakhs is ‘true’. As per Sec. 73(2) of the Companies Act, 2013 read with Rule 3(3) of the Companies (Acceptance of Deposits) Rules, 2014, a company shall accept any deposit from its members, together with the amount of other deposits outstanding as on the date of acceptance of such deposits not exceeding 35% of the aggregate of the paid-up share capital, free reserves and securities premium account of the company.

(ii) Given statement that a Government Company, which is eligible to accept deposits u/s 76 of the Companies Act, 2013, cannot accept deposits from public exceeding 25% of the aggregate of its paid-up capital, free reserves and security premium account is not true.

As per Rule 3(5) of the Companies (Acceptance of Deposits) Rules 2014, a Government Company is not eligible to accept or renew deposits u/s 76, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal exceeds 35% of the aggregate of its paid-up share capital, free reserves and securities premium account.

Question 13.
Vihi Limited engaged in the business of consumer durables. It is managed by a team of professional managers. The Company has not made default in payment of statutory dues, and repayment of Debenture/lnstitutional loan with interest The Company advertised a circular in the newspaper dated 20th September 2022 inviting the deposits from the members and public for the first time. The latest audited financial statement of the Company revealed the following data, as on 31.3.202 2:
Paid up share capital ₹ 70 Crores
Securities Premium ₹ 20 Crores
Free Reserves ₹ 20 Crores
Long-term borrowings ₹ 50 Crores

The Company in the advertisement invited public deposit for a period of 4 Months Plan A and Plan B for 36 Months.

(i) Explain the term ‘eligible company’ and calculate the Maximum amount of Deposit that can be accepted from Public (Non-Member) for Plan A and Plan B based on latest audited Financial Statement under the provisions of the Companies Act, 2013.
(ii) Calculate the maximum amount of deposit Viki Limited can accept from the public under Plan B in case it is a wholly owned Government Company under the provisions of the said Act. [Nov. 20 (6 Marks))

Answer:

(i) Meaning of Eligible company:
As per Rule 2(1)(e) of the Companies (Acceptance of Deposits) Rules, 2014 ‘eligible company’ means a public company as referred to in Sec. 76(1) of the Companies Act, 2013, having a net worth of not less than ₹ 100 crore or a turnover of not less than ₹ 500 crore rupees and which has obtained the prior consent of the company in general meeting by means of a special resolution and also filed the said resolution with the Registrar of Companies before making any invitation o. the Public for acceptance of deposits.

Net worth of Viki Limited as per Sec. 2(57) of the Companies Act, 2013 can be calculated as follows:
Paid up share capital: ₹ 70 crores
Free Reserves: ₹ 20 crores
Securities premium: ₹ 20 crores
Total: ₹ 110 crores
As net worth is in excess of ₹ 100 crores, hence, Viki Limited is an eligible company.

Tenure for which Deposits can be Accepted: A company is not permitted to accept or renew deposits (whether secured or unsecured) which is repayable on demand or in less than 6 months. Further, the maximum period of acceptance of deposit cannot exceed 36 months.

Exception to the rule of tenure of six months: For the purpose of meeting any of its short-term requirements of funds, a company may accept or renew deposits for repayment earlier than 6 months subject to the condition that such deposits shall not exceed 10% of the aggregate of the paid-up share capital, free reserves and securities premium account of the company. Such deposits are repayable not earlier than 3 months from the date of such deposits or renewal thereof.

Maximum Amount of Deposits: An eligible company is permitted to accept or renew deposits from persons other than its members. However, amount of such deposit together with the amount of outstanding deposits (excluding deposits from members) on the date of acceptance or renewal can be maximum 25% of the aggregate of its paid-up share capital, free reserves and securities premium account of the company.

For Plan A: Since the maximum period of deposits is 4 months, the maximum amount of deposits shall not exceed 10% of the aggregate of the paid-up share capital, free reserves and securities premium account of the company.
Maximum amount of deposits: 10% of ₹ 110 crores = ₹ 11 crores.

For Plan B: Maximum amount of deposits: 25% of ^ 110 crores – ₹ 11 crores (outstanding deposit under plan A) = 16.5 crores.

(ii) In terms of Rule 3(5) of the Companies (Acceptance of Deposits) Rules, 2014, in case Viki Limited is a wholly owned Government Company, so it can accept deposit together with the amount of other outstanding deposits as on the date of acceptance or renewal maximum up to 35% of the aggregate of its paid-up share capital, free reserves and securities premium account.
For Plan B: Maximum amount of deposits: 35% of ₹ 110 crores = ₹ 38.5 crores.

Question 14.
Safar Limited having a net worth of % 130 crore wants to accept deposits from its members. It has approached you to advise whether it fails within the category of an eligible company? What special care has to be taken while accepting such deposits from members? [MTP-March 19, Jan. 21 (3 Marks)]
Answer:
Acceptance of Deposits by an eligible company:

As per Rule 2(1)(e) of the Companies (Acceptance of Deposits) Rules, 2014, an “eligible company” as referred to in Sec. 76(1) of the Companies Act, 2013 means a public company, having a net worth of not less than ₹ 100 crore or a turnover of not less than ₹ 500 crore and which has obtained the prior consent of the company in general meeting by means of a special resolution and also filed the said resolution with the Registrar of Companies before making any invitation to the public for acceptance of deposits.

As per Rule 4(a) of the Companies (Acceptance of Deposits) Rules, 2014, an ‘eligible company’ shall accept or renew any deposit from its members, if the amount of such deposit together with the amount of deposits outstanding as on the date of acceptance or renewal of such deposits from members does not exceed 10% of the aggregate of the paid-up share capital, free reserves and securities premium account of the company.

Safar Limited is having a net worth of ₹ 130 crores. Hence, it falls in the category of ‘eligible company’. The fact that turnover has not been stated in the question will not affect this answer, since fulfilling any one criteria will be sufficient.

Conclusion: Safar Limited can accept the deposits, however, it has to ensure that acceptance of deposits from its members together with the amount of deposits outstanding as on the date of acceptance or renewal of such deposits from the members, in no case, exceeds 10% of the aggregate of the paid-up share capital, free reserves and securities premium account of the company.

Question 15.
Discuss the following situations in the light of “Deposit provisions” as contained in the Companies Act 2013 and the Companies (Acceptance of Deposits) Rules, 2014, as amended from time to time.

(i) Bhupendra, one of the Directors of Moon Technology Private Limited, a start-up company, requested his close friend Paras to lend to the company ₹ 20.00 lakhs in a single tranche by way of a convertible note repayable within a period of six years from the date of its issue. Advise whether it is a deposit or not
(ii) Shriram Readymade Garments Limited wants to accept deposits of ₹ 50.00 lakhs from its members for tenure, which is less than six months. Is there any possibility to do so?
(iii) The turnover of Y Ltd. is ₹ 400 crores as per last audited financial statement and net worth is ₹ 50 crores. Can Y Ltd. accept deposits from the public as per Section 73 of the Companies Act, 2013? [Dec. 21 (5 Marks)]

Answer:

Deposit Provisions under the Companies Act, 2013:

(i) In terms of Rule 2(1)(c)(xvii) of the Companies (Acceptance of Deposits) Rules, 2014, if a start-up company receives ₹ 25 lakh or more by way of a convertible note (convertible into equity shares or repayable within a period not exceeding 10 years from the date of issue) in a single tranche, from a person, it shall not be treated as deposit.

In the given case. Bhupendra, one of the Directors of Moon Technology Private Limited, a start-up company, requested his close friend Paras to lend to the company ₹ 20.00 lakhs in a single tranche by way of a convertible note repayable within a period of six years from the date of its issue.
In view of Rule 2(1)(c)(xvii), the amount of ₹ 20.00 lacs shall be considered as deposit as the amount received in below threshold limit of ₹ 25 lakhs.

(ii) As per Rule 3(1) of the Companies (Acceptance of Deposits) Rules, 2014, a company is not permitted to accept or renew deposits (whether secured or unsecured) which is repayable on demand or in less than six months. Further, the maximum period of acceptance of deposit cannot exceed 36 months.

However, as an exception to this rule, for the purpose of meeting any of its short-term requirements of funds, a company is permitted to accept or renew deposits for repayment earlier than six months subject to the conditions that:

(a) such deposits shall not exceed 10% of the aggregate of the paid-up share capital, free reserves and securities premium account of the company; and
(b) such deposits are repayable only on or after three months from the date of such deposits or renewal.

In the given case, Shriram Readymade Garments Limited wants to accept deposits of ₹ 50.00 lakhs from its members for tenure, which is less than six months.

It can do so if it justifies that the deposits are required for the purpose of meeting any of its short-term requirements of funds but in no case such deposits shall exceed 10% of the aggregate of its paid-up share capital, free reserves and securities premium account and further, such deposits shall be repayable only on or after 3 months from the date of such deposits.

(iii) Acceptance of deposits from public:
As per Sec. 76 of the Companies Act, 2013, a public company, having net worth of not less than R 100 crores or turnover of not less than ₹ 500 crores, can accept deposits from persons other than its members subject to compliance with the requirements provided in Sec. 73(2) and subject to such rules as the Central Government, in consultation with the Reserve Bank of India, prescribe. Since, Y Ltd. has a net worth of ₹ 50 crores and turnover of ₹ 400 crores, which is less than the prescribed limits, hence, it cannot accept deposit from public other than its members.

Question 17.
Discuss the following situations in the light of ‘deposit provisions’ as contained in the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014, as amended from time to time.

(i) Samit, one of the directors of Zarr Technology Private Limited, a start-up company, requested his dose friend Ritesh to lend to the company ₹ 30.00 lacs in a single tranche by way of a convertible note repayable within a period six years from the date of its issue. Advise whether it is a deposit or not
(ii) Polestar Traders Limited received a loan of ₹ 30.00 lacs from Rachna who is one of its directors.
Advise whether it is a deposit or not [MTP-April 22]
(iii) City Bakers Limited failed to repay deposits of ₹ 50.00 crores and interest due thereon even alter the extended time granted by the Tribunal, is the company or Swati, its officer-in-default, liable to any penalty?
(iv) Shringaar Readymade Garments Limited wants to accept deposits of ₹ 50.00 lacs from its members for a tenure which is less than six months. Is it a possibility?
(v) Is it in order for the Diamond Housing Finance Limited to accept and renew deposits from the
public from time to time? [MTP-May 20)

Answer:
Misc. provisions as to acceptance of deposits:

(i) As per Rule 2(1)(c)(xvii) of the Companies (Acceptance of Deposits) Rules, 2014, if a start-up company receives ₹ 25 lakh or more by way of a convertible note (convertible into equity shares or repayable within a period not exceeding 10 years from the date of issue) in a single tranche, from a person, it shall not be treated as deposit.

In the given case, Zarr Technology Private Limited, a start-up company, received ₹ 30.00 lacs from Ritesh in a single tranche by way of a convertible note which is repayable within a period of 6 years from the date of its issue. In view of Rule 2(1)(c)(xvii), amount of ₹ 30.00 lakh shall not be considered as deposit.

(ii) As per Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposits) Rules, 2014, any amount received from a person who is director of the company at the time of giving loan to the company shall not be treated as deposit if such director furnishes to the company at the time of giving money, a written declaration to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and further, the company shall disclose the details of money so accepted in the Board’s report.
Assuming that all conditions as specified are complied with, ₹ 30.00 lakh received from Rachna shall not be treated as deposit.

(iii) By not repaying the deposit of ₹ 50.00 crores and the interest due thereon even after the extended time granted by the Tribunal, City Bakers Limited has contravened the conditions prescribed u/s 73 of the Act. Accordingly, following penalty is leviable:

Punishment for the company: City Bakers Limited shall, in addition to the payment of the amount of deposit and the interest due thereon, be punishable with fine which shall not be less than ₹ 1 crore or twice the amount of deposit accepted by the company, whichever is lower but which may extend to ₹ 10 crores.
Punishment for officer-in-default: Swati, being the officer-in-default, shall be punishable with imprisonment which may extend to 7 years and with fine which shall not be less than f 25 lakhs but which may extend to ₹ 2 crores.

Further, if it is proved that Swati had contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, she will be liable for action u/s 447 (Punishment for fraud).

(iv) As per Rule 3(1) of the Companies (Acceptance of Deposits) Rules, 2014, a company is not permitted to accept or renew deposits (whether secured or unsecured) which is repayable on demand or in less than 6 months. Further, the maximum period of acceptance of deposit cannot exceed 36 months.

However, a company may, for the purpose of meeting any of its short-term requirements of funds, accept or renew such deposits for repayment earlier than 6 months from the date of deposit or renewal, as the case may be, subject to the condition that:

such deposits shall not exceed 10% of the aggregate of the paid-up share capital, free reserves and securities premium account of the company; and
such deposits are repayable only on or after 3 months from the date of such deposits or renewal.

In the given case, company wants to accept deposits of ₹ 50 lakh from its members for a tenure which is less than 6 months. It can do so if it justifies that the deposits are required for the purpose of meeting any of its short-term requirements of funds but in no case such deposits shall exceed 10% of the aggregate of its paid-up share capital, free reserves and securities premium account and further, such deposits shall be repayable only on or after 3 months from the date of such deposits.

(v) As per Sec. 73(1) of the Companies Act, 2013, no company can accept or renew deposits from public unless it follows the manner provided under Chapter V of the Act, for acceptance or renewal of deposits from public.

Proviso to Sec. 73(1) states that such prohibition with respect to the acceptance or renewal of deposit from public, inter alia, shall not apply to a housing finance company registered with the National Housing Bank established under the National Housing Bank Act, 1987.

Assuming that Diamond Housing Finance Limited is registered with the National Housing Bank and therefore the prohibition contained in Sec. 73(1) with respect to the acceptance and renewal of deposit from public shall not apply to it. Hence, it being an exempted company, can accept deposits from the public from time to time without following the prescribed manner.

Acceptance of Deposits by Companies – CA Inter Law Study Material

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