Reporting Exempted Deposits under Companies Act, 2013 & Deposit Rules

Table of Contents

1. Basic Discussion on Exempted Deposits & Reporting
2. Applicability of Companies (AOD) Rules, 2014
3. Meaning of ‘Deposit’ & ‘Otherwise’
4. Amount Received from Government
5. Amount Received from Foreign Parties under FEMA
6. Amount Received as Loan or Facility
7. Amount Received as Loan or Financial Assistance
8. Amount Received Against Issue of Commercial Paper
9. Inter – Corporate Deposits
10. Securities Application Money Pending Allotment
11. Loans from Directors & Relatives of Director
12. Some Important & Practical Questions
13. Acceptance of Deposits from Members of Private Company
14. Acceptance of Deposits from Members of Company
15. Secured Debentures OR CCD
16. Unsecured (+) NCD (+) Listed on SE
17. Amount Received from Employees & Non-interest Bearing Amount
18. Receipt of Advance for Supply of Goods or Services
19. Trade Advances/Business Advances
20. Promoter’s Co-Pay (Very Relevant in Borrowing Transactions)
21. Who are ‘Promoters’ under Companies Act, 2013
22. Amounts Received by Nidhi Companies, Chit Fund Companies, CIS
23. Amount Received as Convertible Note
24. Amount Received from AIF, DVCF, etc.
25. Rule 16 of Companies (Acceptance of Deposit) Rules, 2014
26. Punishment for Contravention

1. Basic Discussion on Exempted Deposits & Reporting

• Loans Vs. Deposit vs. Debentures
• ‘Exempted Deposits’ – exception to all provisions of Companies Act
• Important to identify such transactions
• Reporting through e-Form DPT – 3
• 2023-2024 – Certification of Practising CA to e-Form DPT 3***
• Rules amended & e-Form introduced

2. Applicability of Companies (AOD) Rules, 2014

Rules shall apply to a company other than:

• Banking company;
• NBFC as defined in RBI Act, 1934 registered with RBI;
• Housing Finance Co. registered with National Housing
• Bank established under National Housing Bank Act, 1987; and
• Compnay specified by the Central Government under the
  proviso to sub-section (1) of section 73 of the Act.

3. Meaning of ‘Deposit’ & ‘Otherwise’

Deposits: Section 2(31) defines ‘deposit’ as it 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 RBI.

Exempted Deposits: Rule 2(1)(c) of the Cos. (Acceptance of Deposits) Rules, 2014 – Deposit includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include.

4. Amount Received from Government

Any amount received from the Central Govt. or a State Govt., or any amount received from any other source whose repayment is guaranteed by the Central Govt. or a State Govt., or any amount received from a local authority, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature;

5. Amount Received from Foreign Parties under FEMA

Any amount received from Foreign Governments, foreign or international banks, multilateral financial institutions (including, but not limited to, International Finance Corporation, Asian Development Bank, Commonwealth Development Corporation and International Bank for Industrial and Financial Reconstruction), Foreign Governments owned development Financial Institutions, Foreign Export Credit Agencies, Foreign Collaborators, Foreign Bodies Corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of FEMA and Rules and Regulations made there under;

6. Amount Received as Loan or Facility

Any amount received as a loan or facility from:

• any banking company OR
• SBI or any of its subsidiary banks OR
• From a banking institution notified by the Central Govt. under Banking Regulation Act, 1949, OR
• Corresponding new bank as defined in clause (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or in clause (b) of section (2) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, OR
• From a co-operative bank as defined in clause (b-ii) of section 2 of the Reserve Bank of India Act, 1934

7. Amount Received as Loan or Financial Assistance

Any amount received as a loan or financial assistance from:

• Public Financial Institutions notified by the Central Government in this behalf in consultation with RBI or
• Any regional financial institutions or
• Insurance Companies or
• Scheduled Banks as defined in the RBI Act, 1934.

8. Amount Received Against Issue of Commercial Paper

Any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by the RBI;

9. Inter – Corporate Deposits

Any amount received by a company from any other company.

• Some FAQs:
• Whether Sec. 185 of Cos. Act is applicable?
• Whether Sec. 186 of Cos. Act is applicable?
• Whether Agreement necessary?
• Advance for goods or services?
• Reimbursement of expenses?

10. Securities Application Money Pending Allotment

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.

• Explanation.—For the purposes of this sub-clause, it is hereby clarified that –
• (a) Without prejudice to any other liability or action, 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:

11. Loans from Directors & Relatives of Director

Any amount received from a person who, at the time of the receipt of the amount, was 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, as the case may be, 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 and the company shall disclose the details of money so accepted in the Board’s report;

12. Some Important & Practical Questions

• If director is member?
• How to determine whether amount is not from borrowed funds?
• How to make disclosures in board report?
• Whether reporting in Board’s Report required for member’s unsecured loan?
• Can member give loan to company from borrowed funds?
• Whether board approval is required?

13. Acceptance of Deposits from Members of Private Company

Clauses (a) to (e) of section 73(2) of the Act shall not apply to Private Cos.:

(A) Which accepts from its members monies not exceeding 100% of aggregate of Paid-up Share Capital, Free Reserves & Sec. Premium A/c; OR

(B) Which is a start-up, for 5 years from the date of its incorporation; OR

(C) Which fulfils all of the following conditions, namely:

a) Which is not an Associate or Subsidiary Co. of any other Co.;

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 Rs. 50 cores, whichever is lower;

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

14. Acceptance of Deposits from Members of Company

Company referred to in clauses (A), (B) or (C) shall file the details of monies accepted to the Registrar in such manner as may be specified.

• MCA Notification – exemption to Private Cos. MCA Notification No. GSR 464(E) [F.No.1/1/2014-CL-V], dated June 5, 2015]

All the Cos. accepting deposits shall file the details of monies so accepted to the Registrar in eForm DPT-3.

• Rule 3 of Cos. (Acceptance of Deposits) Rules, 2014

15. Secured Debentures OR CCD

Any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets OR bonds or Debentures
Compulsorily Convertible into shares of the company within 10 years.

16. Unsecured (+) NCD (+) Listed on SE

• Any amount raised by 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 SEBI regulations.
• Unsecured (+) NCD (+) Listed on SE.

17. Amount Received from Employees & Non-interest Bearing Amount

Any amount received from an employee of Co. not exceeding his annual salary under a contract of employment with Co. in the nature of non-interest bearing security deposit;

• Under Cos. Act, 1956 and Rules – Any amount received from an employee of the company by way of security deposit.

Any non-interest bearing amount received and held in trust

• Under Cos. Act, 1956 and Rules – Any amount received in trust or any amount in transit

18. Receipt of Advance for Supply of Goods or Services

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 accounted for in any manner whatsoever 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:

• • • Provided that in case of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of 365 days shall not apply

19. Trade Advances/Business Advances

(a) As advance, accounted for in any manner whatsoever, 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;

(b) As security deposit for the performance of the contract for supply of goods or provision of services;

(c) As advance received under long term projects for supply of capital goods except those covered under item (b) above:

(d) 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;

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

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

Explanation.—For the purposes of this sub-clause the amount shall be deemed to be deposits on the expiry of  fifteen days from the date they become due for refund.

20. Promoter’s Co-Pay (Very Relevant in Borrowing Transactions)

• Any amount brought in by Promoters of Co. by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank subject to fulfillment of the foll. conditions:

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

(b) Loan is provided by the promoters themselves or by their relatives or by both; and

(c) Exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter;

21. Who are ‘Promoters’ under Companies Act, 2013

• “Promoter” means a person—

(a) Who has been named as such in a prospectus or is identified by the company in Annual Return referred to in section 92; or

(b) Who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or

(c) In accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act:

• • • Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;

22. Amounts Received by Nidhi Companies, Chit Fund Companies, CIS

• Any amount accepted by a Nidhi Company in accordance with Sec. 406 of Cos. Act.
• Any amount received by way of subscription in respect of a chit under Chit Fund Act, 1982
• Any amount received by Co. under any Collective Investment Scheme in compliance with regulations framed by SEBI

23. Amount Received as Convertible Note

An amount of Rs. 25 lacs or more received by a Start-up Co., by way of 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:

• Start-up Company as recognised as by DPIIT
• Convertible Note means an instrument evidencing receipt of money initially as a debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up company upon occurrence of specified events and as per the other terms and conditions agreed to and indicated in the instrument.

24. Amount Received from AIF, DVCF, etc.

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 SEBI in accordance with regulations made by it.

25. Rule 16 of Companies (Acceptance of Deposit) Rules, 2014

25.1 Return of Deposits to be filed with the Registrar

• Every company to which these Rules apply, shall on or before the 30th day of June, of every year, file with the Registrar, a return in e-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 and declaration to that effect shall be submitted by the auditor in Form DPT – 3 (Aug. 29, 2022)
• It is hereby clarified that Form DPT-3 shall be used for filing return of deposit or particulars of transaction not considered as deposit or both by every company other than Government Co.

25.2 Disclosure in the Financial Statement

• 16A (1) Every company, other than a private company, shall disclose in its financial statement, by way of notes, about the money received from the director.
• 16A (2) Every private company shall disclose in its financial statement, by way of notes, about the money received from the directors, or relatives of directors.

26. Punishment for Contravention

• If any Co. referred to in sub-section (2) of section 73 or any Eligible Co. inviting deposits or any other person contravenes any provision of these rules for which no punishment is provided in the Act –
• The Company and every officer of the company who is in default shall be punishable with fine which may extend to Rs. 5,000/- and where the contravention is a continuing one, with a further fine which may extend to Rs. 500/- for every day after the first day during which the contravention continues.