Comprehensive guide to Loans under Companies Act , 2013 (Including Deposits)

Company-Law-829d9362

Company is an artificial person created by Law. Two human agencies, through which a company acts, are members of the company and Board of directors. The Board is a managerial body to whom is entrusted the whole management of the company. It is constituted by the members. Directors are accountable to the members as much as members are empowered to appoint and remove them.

Chapter XII of the Companies Act, 2013 – Meetings of Board and its Powers deals with the powers of the Board. This chapter of the Act contains provisions related to Powers of Board, Restriction /Prohibition wherever required so as to strike a balance between Members and Board. This article is restricted to provisions related to Loans (either receipt/payment).

We will discuss provisions under two parts –

  1. Loans received by Company
  2. Loans given by Company

Receipt of Loans –

The following are the common questions that arise –

  1. What is the monetary limit for availing loans?
  2. Can a Director avail loan on behalf of Company?
  3. Whether approval of members is required for availing loan?
  4. Is there any restriction on availing loan from director or related party?
  5. What are the Secretarial Compliances required on availing loans?
  6. Can loan be taken from members/directors/Companies with common director/members?
  7. Can a company take loan from its employee?

Let us discuss the provisions in detail –

Following are the Sections covered: Sec 179, 180(1)( c) ,Sec 73-76, Sec 184

 Sec 179(Powers of the Board):

Powers of the Board are contained in Sec 179 read with Rule 8 of the Companies (Meeting of Board and its Powers) Rules, 2014. Sec 179 has given wise powers to the board by allowing them to exercise all the powers of the company except those powers which are reserved for the shareholders to be exercised at the general meetings.

As per Second proviso to Section 179(1) – Regulations made in general meeting shall not invalidate any prior act of the Board, which was otherwise valid.

As per 179(3) – The following powers shall be exercised only by means of resolution passed at meeting of the Board. (No resolution by circulation/Assignment to director) –

d) Power to borrow money

e) Power to Invest money

f) Power to grant loans /give guarantee/ provide security in respect of loans

As per proviso to Sec 179(3) – the Board may delegate the powers referred in (d), (e), (f) above subject to following conditions –

  • The delegation shall be passed by resolution at the Board Meeting
  • Power may be delegated to –
    • Committee of directors
    • Managing Director
    • Manager
    • Principal Officer of the company
    • Principal Officer of the Board

Note : In respect of Overdraft – Borrowing money shall mean the arrangement made by the company with its bankers for the borrowing of money by way of Overdraft/Cash Credit or otherwise and not the actual day-to-day operation of the Overdraft/Cash credit or other accounts by means of which the arrangements so made is actually availed of.

So, it can be clearly said that Board has the power to borrow money on behalf of the Company. However, resolution has to be passed at Board meeting (either through Video Conference or else) for availing such loan or assigning to the specified person.

Filing of Board Resolution –

As per Section 117(3)(g) – Any resolution passed at a Board meeting by exercising any of the powers of the Board as enumerated under Section 179(3) read with Rule 8 shall be filed with the Registrar in Form MGT-14 within 30 days of passing of such Board Resolution.

Note : As per Notification dated 5th June 2015 In case of private company – clause (g) of Sub-section 3 of Section 117 shall not apply.

However, there is no monetary limit prescribed under Section 179. Limit was imposed through Section 180 – Restrictions on the powers of the Board.

Section 180 (Restrictions on the powers of the Board) –

Section 180 – Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution

(1) (c) Borrow money, if money already borrowed together with money to be borrowed will exceed the aggregate paid-up share capital, free reserves and securities premium account, apart from temporary loans obtained from the company’s bankers in the ordinary course of business.

For the purposes of this clause, the expression “temporary loans” means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature.

(5) No debt incurred by the company in excess of the limit imposed by clause (c) of sub-section (1) shall be valid or effectual, unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been exceeded.

Special resolution passed by the members shall specify  the total amount upto which the moneys may be borrowed by the Board; otherwise such special resolution shall be void. Therefore, it is evident that the members cannot give unlimited power of borrowing to the Board.

So, Power to the board as given under Section 179(3)(e) is restricted to 100% of PSC+FR+SP.

If loan availed is up-to limit specified – Board Resolution + MGT 14 (If applicable)

If loan availed is above limit specified – Board Resolution + MGT 14(If applicable) + Special Resolution (If applicable)

Note: As per notification dated 5thJune,2015 In case of private company – Section 180 shall not apply .

Section 184 (Disclosure of Interest by Director) –

Purpose of Section 184 is to ensure that the interest or concern of a director in other entities is brought to the notice of the other directors of the company.

As per Section 184(1) – Every director shall disclose his concern or interest in any company or companies or Body corporate, firms or other associates of individuals.

The disclosure shall  be made at the first Board meeting –  in which he participates as director , in every financial year and after any change takes place in the disclosures already made by the director.

Disclosure shall include shareholding, in such manner as may be prescribed.

As per Rule 9 of Companies (Meeting of Board and its Powers) Rules, 2014

(1) Every director shall disclose his concern or interest in any company or companies or bodies corporates (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form MBP 1.

(2) It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice.

(3) All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose.

As per Section 184(2) – Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into—
(a) with a body corporate in which such director or such director in association with any other director, holds more than two per cent (2%) shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or

(b) with a firm or other entity in which, such director is a partner, owner or member, as the case may be, shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting

Note: As per Notification dated 5th June 2015 – In case of private company which has not committed any default in filing of its financial statements under Section 137 or annual return under Section 92 , interested director may participate in the board meeting  after disclosure of his interest.

Proviso to Section 184(2) – Provided that where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested or at the first meeting of the Board held after he becomes so concerned or interested.

As per Section 184(3) – A contract or arrangement entered into by the company without disclosure under sub-section (2) or with participation by a director who is concerned or interested in any way, directly or indirectly, in the contract or arrangement, shall be voidable at the option of the company.

Note:

  • Disclosure under Section 184(1) is different from that in Sub-Section (2).
  • Disclosure under Section 184(1) is to be made irrespective of the percentage of the Holding in the company/Body Corporate.

So, it can be concluded that –

  • Interest rate at which loan can be taken is not provided under the Act.
  • Loans can be taken from Entity in which director is interested however disclosure / restriction on vote as prescribed under the act has to be followed.
  • Private Companies are not given blanket relief as provided under Section 180. Only relief provided is from restriction from vote subject to additional conditions of compliance with Sec 137 and Sec 92.

All the sections that directly affect receipt of loan by company are covered so far. However the provisions inserted vide Companies Act , 2013 to curb the practice by Companies are not discussed. Before discussing those provisions let us understand the practice followed before insertion of such provisions.

Let us take an example of Company X and Company Y. Company X needs Rs 1 Cr from Company Y for purpose of its business. What are the ways possible?

Obviously, this should be shown as loan and interest as applicable has to be charged subject to exemption as provided under Section 186(Discussed later on). There are other issues involved such as consideration of interest as deemed income under Income Tax Act,1961 and payment of tax on such interest. Deemed dividend concept under Section 2(22)(e) of Income tax Act,1961. There are also cases where Section 40A(2), Section 69 to Section 69C of Income Tax Act, 1961 are invoked. So in order to avoid the above complexity, the transaction is shown as –

  • Share Application money
  • Advance for purchase of goods/services
  • Advance for purchase of land
  • Security Deposit
  • One or more transactions of the above by involving group of companies

In order to restrict above practices all the above transactions are termed as DEPOSITS vide Companies Act, 2013.

What happens if a transaction is considered as Deposit? Is it just showing it as deposit in DPT-3 or disclosing it in the Financial Statements?

Implication of above classification is detailed hereunder –

Deposits (Section 73 to 76) –

Section 73 to 76 of the Companies Act, 2013 (herein after called the Act) read with Companies (Acceptance of Deposits)Rules, 2014 made under Chapter V of the Act (herein after called‘ the Rules’) regulate the invitation and acceptance of deposits. It prohibits acceptance of deposits except from the members through ordinary resolution or acceptance deposits by ‘’eligible company’’ being a public company, subject to conditions specified in the rules. (Eligible company is defined under the rules based on net worth and turnover).

The Act read with the Rules also deals with various aspects including prohibition of acceptance of deposits except from themembers, subject to conditions, inclusive definition of deposit,

eligible company, depositor etc., conditions for acceptance of deposits such as approval of shareholders in a general meeting, credit rating, provision of deposit insurance, trustees of deposit

holders etc., In addition, the act protect the interest of depositor through Section 37 and 245(class action suit by requisite number of depositors)of the Act. In addition, the Act provides for stringent penalty for any violations in complying with the provisions of this Act, in this regard.

What is a deposit?

Section 2(31) of the Companies Act (herein after called the act) defines deposit as under- “deposit” includes any receipt of money by way of depositor as 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;

What is not a deposit ?

Inclusive Definition of the word “Deposit” under Rule 2(c) of Rulesmade under Chapter V is as under“Deposit” includes any receipt of money by way of depositor loan or in any other form, by a company, but does not include (Extract)

(iii) any amount received as a loan or facility from anybanking company or from the State Bank of India orany of its subsidiary banks or from a banking institution.

(iv) any amount received as a loan or financial assistancefrom Public Financial Institutions

(vi) any amount received by a company from any other company

(vii) any amount received and held pursuant to an offer made in accordance with the provisions of the Act 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. 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 sixty days, such amount shall be treated as a deposit under these rules. For the purpose of this rule any adjustment of the amount for any other purpose will not be treated as refund;

(viii) any amount received from a person who, at the time of the receipt of the amount, was a director of the company.

The director from whom money is received, furnishes to the company at the time of giving the money, 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;

Note: If no declaration is obtained, the same is considered as deposit.

(x) any amount received from an employee not exceeding his annual salary, under a contract of employment with the company in the nature of non-interest bearing security deposit.

Note: If such deposit exceeds employee’s salary, it is considered as deposit.

(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 with in a period of three hundred and sixty-five days from acceptance of such advance. In case of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of three hundred and sixty five days shall not apply.

(b) as advance, accounted for in any manner whatso ever, received in connection with consideration for property under an agreement or arrangement, provided that such advance is adjusted against the property in accordance with the terms of agreement or arrangement.

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

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

If the amount received under (a) (b) and (d) above becomes refundable (with or without interest) because the company accepting the money does not have necessary permission or approval to deal in the goods or properties or services for which the money is taken, the amount received shall be deemed to be a Deposit under these rules.

Note – Deemed Deposits under this clause are –

  1. Advance for supply of goods or provision of services and such advance is NOT appropriated against supply of goods or provisions within 365 days
  2. Advance for property and such advance is not adjusted (NO TIME LIMIT SPECIFIED)
  3.  Advance for capital goods, other goods / services, land is refundable AND the reason for refund is the receiving entity has no permission/approval to conduct the proposed transaction.

(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:-

(a) the loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance; and

(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.

Note – Any loan by promoter without any instruction from Financial Institution/amount outstanding after repayment of loans to financial institutions is considered as DEPOSIT

So, whether loan from member is considered as deposits?

Any loan from members of the company is to be considered as deposit as it is not specifically excluded by Rule 2(c) and all the compliances as required by the act are discussed later on.

Who is depositor?

Rule 2(1)(d) under Chapter XV defines depositor as under

‘Depositor’ means-

(i) any member of the company who has made a deposit with the company in accordance with sub-section (2) of section 73 of the Act, or

(ii) any person who has made a deposit with a public company in accordance with section 76 of the Act.

What is an Eligible Company (Relevant for Deposits from Public under Section 76)?

Rule 2(1)(e) of Rules made under Chapter V defines eligible company as under:

“Eligible company” means a public company as referred to in sub- section (1) of section 76, having a net worth of not less than one hundred crore rupees or a turnover of not less than five hundred 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 and where applicable, with the Reserve Bank of India before making any invitation to the Public for acceptance of Deposits;

Provided that an eligible company, which is accepting deposits with in the limits specified under clause (c) of sub-section (1) of section 180, may accept deposits by means of an ordinary resolution (100% of PSC+FR+SP).

“Trustee” means the Trustee as defined in section 3 of the Indian Trusts Act, 1882.

Prohibition on acceptance of deposits from public –

Section 73(1) states that, no company (either public or private) shall invite, accept or renew deposits under this Act from the public except in a manner provided under Chapter V(discussed below).

Exceptions –

Section 73(1) prohibition, does not apply to

— a banking company; and

— non- banking financial company as defined in the Reserve Bank of India Act, 1934; and

— to such other company as the Central Government may, after consultation with the Reserve Bank of India, specify in this behalf.

Note: It can be concluded that Acceptance of deposits from Public is restricted as per 73(1).  As per Section 76 certain Eligible companies can accept deposit from public. Public companies satisfying certain criteria are covered under the definition of Eligible companies.

 Hence the following points merit consideration in related to a Private company –

  • Private company cannot accept deposit from Public
  • Private Company cannot accept loan from an individual (other than member & director) as the same is considered as deemed deposit and deposit from public is prohibited
  • Loan from members of the private company is considered as deposit and compliance with 73(2) is required
  • There is no difference between loan and deposit (in case of members)
  • Certain category of private companies are excluded from compliance with Sec 73(2)
  • Deemed deposit as discussed above ( for example : Advance for more than 365 days) are not allowed as they are covered as deposits from public and hence such company is liable to penal provisions

Conditions for acceptance of deposits from Members –

Section 73(2) states that a company may, subject to

(i) the passing of a resolution in general meeting; and
(ii) subject to such rules as may be prescribed in consultation with the Reserve Bank of India, 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, 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 deposit or sand 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 thirty days before the date of issue of the circular;

(c) depositing such sum which shall not be less than fifteen per cent. of the amount of its deposits maturing during a financial year and the financial year next following, and kept in a scheduled bank in a separate bank account to be called as deposit repayment reserve account;

(d) providing such deposit insurance in such manner and to such extent as may be prescribed;

(e) 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

(f) 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. In case when a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as ‘‘unsecured deposits’’ and shall be so quoted in every circular, form, advertisement

or in any document related to invitation or acceptance of deposits.

Note : As per notification dated 13 June 2017, Private Company are exempted from the  compliance with clause a to e of Section 73(2) if it is accepting deposits from members  –

-Up to 100 percent of PSC + FR + SP

-It is not a subsidiary or associate of any company

-Borrowing of the company is less than twice of paid-up share capital or 50 crores, whichever is lower.

Section 73(3) – Every deposit accepted by a company under sub-section (2) shall be repaid with interest in accordance with the terms and conditions of the agreement referred to in that sub-section.

Section 73(4)- When a company fails to repay the deposit or part thereof or any interest thereon under sub-section(3), 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.

Section 73(5) – Deposit repayment reserve account referred to in clause (c) of sub-section (2) shall not be used by the company for any purpose other than repayment of deposits.

Note :

Section 73(2),(3),(4) are applicable to Private Companies and no exemption is provided.

Deposit accepted before the commencement of the Act –

Section 74(1) – 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—

(a) file, within a period of three months from such commencement or from the date on which such payments, are due, with the Registrar a statement of all the deposits accepted by the company and sums remaining unpaid on such amount with the interest payable thereon along with the arrangements made for such repayment.

(b) repay within one year from such commencement or from the date on which such payments are due, whichever is earlier.

Acceptance of deposit from public by certain companies –

Section 76(1) states that notwithstanding anything contained in section 73, an Eligible company, may accept deposits from persons other than its members subject to compliance with there 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 be required to obtain the rating(including its net worth, liquidity and ability to pay its deposits on due date) from a recognized credit rating agency.

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

Rules under Chapter V(Applicable for both Section 73 & 76) –

Rule 3 under Chapter V states that

— No company under sub-section (2) of section 73 and no eligible company shall accept or renew any deposit, whether secured or unsecured, which is repayable on demand or upon receiving a notice, within less than six months or more than thirty-six months from the date of acceptance or renewal of such deposit

Exceptions

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 six months from the date of deposit or renewal, as the case may be, subject to the conditions that-

(a) such deposits shall not exceed ten per cent of the aggregate of the paid up share capital and free reserves of the company, and

(b) such deposits are repayable not earlier than three months from the date of such deposit or renewal thereof.

Rule 3(3) states that no company (other than eligible company) referred to in sub-section(2) of section 73 shall accept or renew any deposits if the amount of such deposits together with the amount of other deposits out standing as on the date of acceptance or renewal of such deposits exceeds 25 per cent of the aggregate of the paid-up share capital and free reserves of the company.

Rule 3(4) states that no Eligible company shall accept or renew-

(a) Any deposit from its members, if the amount of such deposit together with the amount of deposits out standing as on the date of acceptance or renewal of such deposits from members exceeds ten per cent of the aggregate of the paid-up share capital and free reserves of thecompany;

(b) Any other deposit, if the amount of such deposit together with the amount of such other deposits, other than the deposit referred to in (a) above, together with the amount of deposits outstanding on the date of acceptance or renewal exceeds twenty-five per cent of aggregate of the paid-up share capital and free reserves of the company.

Rule 3(6) states that no company under sub-section (2) of section 73 or any Eligible company shall invite or accept or renew any deposits in any form, carrying a rate of interest or pay brokerage thereon at a rate exceeding the maximum rate of interest or brokerage prescribed by the Reserve Bank of India for acceptance of deposits by non-banking financial companies.

Rule 4 – Form and particulars of advertisements/circulars –

(1) Every company referred to in sub-section (2) of section 73 intending to invite deposit from its members shall issue a circular to all its members by registered post with acknowledgement due or speed post or by electronic mode in Form DPT-1. In addition to issue of such circular to all members in the manner specified above, the circular may be published in English language in an English newspaper and in vernacular language in a vernacular newspaper having wide circulation in the State in which the registered office of the company is situated.

(2) Every eligible company intending to invite deposits shall issue a circular in the form of an advertisement in FormDPT-1 for the purpose in English language in an English newspaper and in vernacular language in one vernacular newspaper having wide circulation in the State in which the registered office of the company is situated.

(3) Every company inviting deposits from the public shall upload a copy of the circular on its website, if any.

(4) No company shall issue or allow any other person to issue or cause to be issued on its behalf, any circular or a circular in the form of advertisement inviting deposits, unless such circular or circular in the form of advertisement is issued on the authority and in the name of the Board of directors of the company.

(5) No circular or a circular in the form of advertisement shall be issued by or on behalf of a company unless, not less than thirty days before the date of such issue, there has been delivered to the Registrar for registration a copy thereof signed by a majority of the directors of the company as constituted at the time the Board approved the circular or circular in the form of advertisement, or their agents, duly authorized by them in writing.

(6) A circular or circular in the form of advertisement issued shall be valid until the expiry of six months from the date of closure of the financial year in which it is issued or until the date on which the financial statement is laid before the company in annual general meeting or, where the annual general meeting for any year has not been held, the latest day on which that meeting should have been held in accordance with the provisions of the Act, whichever is earlier, and a fresh circular or circular in the form of advertisement shall be issued, in each succeeding financial year, for inviting deposits during that financial year.

For the purpose of this rule, the date of the issue of the newspaper in which the advertisement appears shall be taken as the date of issue of the advertisement and the effective date of issue of circular shall be the date of dispatch of the circular.

Rule 5 –Deposit Insurance

(1) Every company referred to in sub-section (2) of section 73 and every other eligible company inviting deposits shall enter into a contract for providing deposit insurance at least thirty days before the issue of circular or advertisement or at least thirty days before the date of renewal, as the case may be. For the purposes of this sub-rule, the amount as specified in the deposit insurance contract shall be deemed to be the amount in respect of both principal amount and interest due thereon.

Rule 7 – Appointment of deposit trustees.

No company under sub-section (2) of section 73 or any eligible company shall issue a circular or advertisement inviting secured deposits unless the company has appointed one or more deposit trustees for creating security for the deposits. A written consent shall be obtained from the deposit trustee(s) before their appointment and a statement shall appear in the circular or circular in the form of advertisement with reasonable prominence to the effect that the deposit trustee(s) have given their consent to the company to be so appointed.

Execution of deposit trust deed before issuing advertisement

The company shall execute a deposit trust deed in Form No.DPT-2 at least 7 days before issuing the circular or circular in the form of advertisement.

Rule 13 – Maintenance of liquid assets and creation of Deposit Repayment Reserve Account

Every company referred to in sub-section (2) of section 73and every eligible company shall on or before the 30th day of April of each year deposit the sum as specified in clause (c) of the said sub-section with any scheduled bank and the amount so deposited shall not be utilized for any purpose other than for the repayment of deposits. The amount remaining deposited shall not at any time fall below fifteen per cent. of the amount of deposits maturing, until the end of the current financial year and the next financial year.

Rule 14 – Registers of deposits

(1) Every company accepting deposits shall, from the date of such acceptance, keep at its registered office one or more separate registers for deposits accepted/renewed, in which there shall be entered separately in the case of each depositor the following particulars, namely:

(a) Name, address and PAN of the depositor/s;

(b) Particulars of guardian, in case of a minor;

(c) Particulars of the nominee;

(d) Deposit receipt number;

(e) Date and amount of each deposit;

(f) Duration of the deposit and the date on which each deposit is repayable;

(g) Rate of interest;

(h) Due date(s) for payment of interest;

(i) Mandate and instructions for payment of interest and for non-deduction of tax at source, if any;

(j) Date or dates on which payment of interest will be made;

(k) Details of deposit insurance including extent of deposit insurance;

(l) Particulars of other security/ charge created;

(m) Any other particulars relating to the deposit;

(2) Entries in the register shall be made within seven days from the date of issuance of the deposit receipt and such entries shall be authenticated by a director or secretary of the company or by any other officer authorized by the Board for this purpose.

(3) The register or registers referred to in sub-rule (1) shallbe preserved in good order for a period of not less thaneight years from the financial year in which the latest

entry is made in the register.

Rule 16 – Return of deposits to be filed with the Registrar

Every company to which these rules apply, shall on or beforethe 30th day of June, of every year, file with the Registrar, areturn in Form DPT-3 along with the fee as provided in Companies

(Registration Offices and Fees) Rules, 2014 and furnish the information contained therein as on the 31st day of March of that year duly audited by the auditor of the company.

Rule 17 – Penal rate of interest

Every company shall pay a penal rate of interest of eighteen per cent. per annum for the overdue period in case of deposits, whether secured or unsecured, matured and claimed but remaining unpaid.

As compared to loans, compliance with provisions of Deposits is complicated. And companies that have raised funds through means of deemed deposits under the previous act has to be cautious while disclosing the same under DPT-3. Auditors of such companies have to check compliance with Section 73 to 76 as part of reporting required under 143(11) (CARO).

Relevance of above provisions in CARO,2016 (For Auditor)

Clause 5 of CARO,2016 –

In case, the company has accepted deposits, whether the following has been complied with:

 (a) The provision of sec 73 to 76 or any other relevant provision of Companies Act, 2013 and the rules framed there under, and

 (b) If the order has been passed by company law board (CLB) or National company law tribunal (NCLT) or RBI or any court or any other tribunal.

  (c) Directives issued by RBI

However, if any of the above not complied with, the nature of contraventions should be stated.

 

Anil Kumar Tenneti

Editor, Tax Concept & TC VIP. Chartered Accountant II Stock Market Enthusiast. I write articles related to market, taxation, Company law and MSME.

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