Loans and Deposits under Companies Act, 2013 CA Shriniwas Y. Joshi

Definition of Deposit – Sec. 2(31) CA S H R I N W A Y. J O “Deposit” includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India. 2

Deposits – Chapter V CA S H R I N W A Y. J O Sec.73 - Prohibition of Acceptance of Deposit from Public Sec.74 - Repayment of Deposit etc; ccepted before commencement of 2013 Act. Sec.75 - Damages for fraud Sec.76 - Acceptance of Deposit from Public by certain companies Sec. 76A - Punishment for Contravention of Sec.73 or Sec. 76 Companies (Acceptance of Deposits) Rules, 2014 Companies (Appointment of Directors) Rules, 2014 3

Penalties for Contravention – Non Repayment of Deposit or Interest CA S H R I N W A Y. J O Sec. 66 - Reduction of share capital not allowed Sec.70 - Prohibition to buy back its own shares Sec.164(2)-Disqualification of 5 years for appointment or re-appointment as Director. Sec.186 - Prohibition of Loans & Guarantees by Company Sec.245 -Class Action suit by the Depositors 4

Penalties for Contravention – Non Repayment of Deposit or Interest CA S H R I N W A Y. J O Sch.V - Minimum managerial remuneration in case of Loss not allowed. Sec.178 - Stakeholders relationship Committee to step-in two resolve grievances of the Deposit holders. Rule 8 - Companies (Acceptance of Deposit) Rules 2014. Trustees to carry out acts to protect the Interest of Depositors 5

Other Provisions reflecting to Deposits CA S H R I N W A Y. J O Sec.125 – Matured Deposits to be transferred to the Investors Protection Fund. Sec.143(1)(d) – Auditors to comment whether loans or advances are shown as deposits. Sec.143(3)(g) – Auditor report to state whether any director is disqualified from being appointed as director under Sec.164(2) 6

Other Provisions reflecting to Deposits CA S H R I N W A Y. J O Rule 14 – Companies (Appointment of Directors) Rule,2014 – Information by director of his disqualification u/s 164(2) – in Form DIR-8 Company to inform disqualification of all directors in Form DIR-9 with 30 days Presentation in Balance Sheet as per Sch.III General Instructions for preparation of Balance Sheet – Long Term Borrowings – Balance of Deposits Short Term Borrowings – Balance of Deposits Other Non-Current Assets – Unpaid matured Deposits & Interest Accrued thereon. 7

Companies (Acceptance of Deposit) Rules, 2014 – rule 2(1)(c) CA S H R I N W A Y. J O ‘Deposit’ includes any receipt of money by way of deposit or Loan or in any other form, by a company but does not include – Amount received from Central or State Govt. Amount received were repayment is guaranteed by Central or State Govt. Amount received from Local Authority or Statutory authority constituted under Act of Parliament or a state legislature 8

Companies (Acceptance of Deposit) Rules, 2014 – rule 2(1)(c) CA S H R I N W A Y. J O ‘Deposit’ includes any receipt of money by way of deposit or Loan or in any other form, by a company but does not include – Amount received from Foreign Government, Foreign Banks, Multi lateral Financial Institutions or Financial Institutions owned by Foreign Govt., Foreign collaborator Amount received from Export Credit Agencies, Foreign Bodies Corporate and Foreign Citizens and persons resident outside India, [subject to provisions of FEMA] 9

Companies (Acceptance of Deposit) Rules, 2014 – rule 2(1)(c) CA S H R I N W A Y. J O ‘Deposit’ includes any receipt of money by way of deposit or Loan or in any other form, by a company but does not include – Amount received as a loan or facility from any banking company or from a Co-operative Bank Amount received as a loan or financial assistance from Public Financial Institutions or Regional Financial Institutions or Insurance Companies or Scheduled Banks 10

Companies (Acceptance of Deposit) Rules, 2014 – rule 2(1)(c) CA S H R I N W A Y. J O ‘Deposit’ includes any receipt of money by way of deposit or Loan or in any other form, by a company but does not include – Amount received against issue of Commercial paper Amount received from any other company Amount received towards subscription of any securities including share application money, pending allotment, for the period of 60 days 11

Companies (Acceptance of Deposit) Rules, 2014 – rule 2(1)(c) CA S H R I N W A Y. J O ‘Deposit’ includes any receipt of money by way of deposit or Loan or in any other form, by a company but does not include – Amount received from Director of the company or a relative of the such a director (Declaration that the amount is not acquire by borrowing, accepting loans or deposits) Amount raised by issue of Secured Bonds or Debentures or Debentures compulsorily convertible into shares within 5 years. 12

Companies (Acceptance of Deposit) Rules, 2014 – rule 2(1)(c) CA S H R I N W A Y. J O ‘Deposit’ includes any receipt of money by way of deposit or Loan or in any other form, by a company but does not include – Amount received from employee, not exceeding his annual salary, in the nature of non interest bearing security deposit Non interest bearing amount received or held in Trust Amount accepted by a Nidhi Company except with a promise or offer to give returns on completion of period specified 13

Companies (Acceptance of Deposit) Rules, 2014 – rule 2(1)(c) CA S H R I N W A Y. J O ‘Deposit’ includes any receipt of money by way of deposit or Loan or in any other form, by a company but does not include – Amount received in the course of or for the purpose of business of the company – As Advance for supply of Goods or Provision of Services for the period of 365 days (No time limit for advance disputed in court) Advance for property Advance as Security Deposit Advance for supply of Capital Goods 14

Companies (Acceptance of Deposit) Rules, 2014 – rule 2(1)(c) CA S H R I N W A Y. J O ‘Deposit’ includes any receipt of money by way of deposit or Loan or in any other form, by a company but does not include – Amount brought in by promoter or his relative by way of unsecured loan – In pursuance of stipulation impose by lending Institution for Promoter’s contribution 15

Sec. 73 - Prohibition on Acceptance of Deposit from Public – CA S H R I N W A Y. J O Deposits from Members – Resolution in General Meeting Compliance with Deposit Rules Issue of Circular in format DPT-1 Filing of Circular with Registrar Depositing some not less than 15% of deposits maturing during current and next Financial Year. Providing Deposit Insurance Company should not have committed any default in the past Providing Security and creating charge 16

Sec. 73 - Prohibition on Acceptance of Deposit from Public – CA S H R I N W A Y. J O Deposits from Members – (Notification number GSR 464(E) dtd.05.06.2015) Exemption to Private Limited Company – To accept deposit from its members upto 100% of aggregate of paid-up share capital and free reserves 17

Tribunal can extend time for repayment Default to attract penalty Sec. 74 – Repayment of Deposit etc.accepted before commencement of 2013 Act CA S H R I N W A Y. J O Statement in Form DPT-4 for Deposits accepted to be filed with Registrar and unpaid as on 01.04.2014 Repayment within one year i.e. by 31.03.2015 or in accordance with terms and conditions for which deposits have been accepted. Tribunal can extend time for repayment Default to attract penalty 18

Sec.75- Damages for Fraud (Not yet enforced) CA S H R I N W A Y. J O Intent to defraud – Officer in default personally liable u/s 447 without limitation of Liability for all losses or damages to deposit holders. Any person can take action against the company. 19

Sec.76 – Acceptance of Deposit from public by certain companies – H R I N W A Y. J O Public company having net worth of Rs.100 crore or more and Turnover of Rs.500 crore or more may accept deposit from persons other than members. Investment grade Rating required Creating charge within 30 days All provisions of chapter V to apply mutatis mutandis to Public Deposits (Rule 19) 20

ec.76A – Punishment for contravention of Sec.73 or Sec.76 W A Y. J O Fine on company Rs.1 crore to Rs.10 crore Officer in default - punishment with imprisonment upto 7 years and fine from Rs.25 lacs to Rs.2 Crore. If intention to deceive – then Sec.447 applicable. 21

Companies (Acceptance of Deposit) Rules, 2014 CA S H R I N W A Y. J O Rule 3 – Terms & Conditions of acceptance of Deposit – 3(1)(a) Period of Deposit & Limit of Deposit 3(3) Limit of Deposits from Members 3(4) Limit of Deposits to be taken by eligible Company 3(5) Limit of Deposits to be taken by Govt. Company 22

Companies (Acceptance of Deposit) Rules, 2014 CA S H R I N W A Y. J O Rule 4 – Form & Particulars of Advertisement & circulars 4(1) & 4(2) – Circular in Format DPT-1 and Advertisement in English & Varnacular Paper 4(3) – Uploading copy of circular on the website 4(5) – Filing of circular with Registrar 30 days before issue 4(6) – Advertisement valid for 6 months or date of AGM whichever is earlier. 23

Companies (Acceptance of Deposit) Rules, 2014 CA S H R I N W A Y. J O Rule 5 – Manner & extent of deposit insurance 5(1) – Enter into contract of Insurance 30 days before issue of circular – Date extended to 31.03.2016 or until Deposit insurance product available, whichever is earlier. 5(2) – 100% Insurance upto Deposit of Rs.20,000/- 5(3) – Insurance premium to be borne by the company 5(4) – If no Insurance, then repay deposit within 15 days or pay 15% interest. 24

Companies (Acceptance of Deposit) Rules, 2014 CA S H R I N W A Y. J O Rule 6 – Creation of Security 6(1) – Charge on Fixed Assets other than intangible assets. Deposits not to exceed value of security plus insurance value. Valuation report necessary. 6(2) – Security to be created in favour of trustees. 25

Companies (Acceptance of Deposit) Rules, 2014 CA S H R I N W A Y. J O Rule 7 – Appointment of Trustees for depositors 7(1) Written Consent for Appointment 7(2) Execution of Trust Deed in format DPT-2 7(3) Ineligibility to be a Trustee 7(4) Removal of Trustee 26

Companies (Acceptance of Deposit) Rules, 2014 CA S H R I N W A Y. J O Rule 8 – Duties of trustees To ensure creation of charge & Insurance, correctness of contents of the circular To take steps to ensure compliance of condition of trust deed To carry out acts necessary for protection of Interest of the depositors. 27

Companies (Acceptance of Deposit) Rules, 2014 CA S H R I N W A Y. J O Rule 9 – Meeting of Depositors On requisition signed by at least 1/10th of depositors in value. Rule 10 – Form of application for deposits Deposit only on filling application by depositors with declaration that deposit is not out of money borrowed. Rule 11 – Power to Nominate 28

Companies (Acceptance of Deposit) Rules, 2014 CA S H R I N W A Y. J O Rule 12 – Furnishing deposit receipt to the depositor Issue Receipt within 21 days of receipt of money Receipt to state date of deposit, name & address of depositor, amount received, rate of interest and date of repayment Rule 13 – Maintenance of Liquid Assets & creation of deposit repayment reserve 29

Companies (Acceptance of Deposit) Rules, 2014 CA S H R I N W A Y. J O Rule 14 – Register of deposit Giving prescribed particulars – As stated in the Rule 14 (1) Rule 15 – General provision regarding premature repayment of deposit 1% rate reduction unless forced repayment or repayment to military personnel Higher interest only on renewal for period longer than unexpired period of premature withdrawal. 30

Companies (Acceptance of Deposit) Rules, 2014 CA S H R I N W A Y. J O Rule 16 – Return of deposit to be filed with registrar Form DPT-3 to be filed by 30th June for period upto 31st March, along with auditors certificate. Rule 17 – Penal rate of interest 18% on all overdue deposit matured & claimed but remaining unpaid. Rule 18 – Power of Central Govt to decide certain questions To be exercised in consultation with RBI 31

Companies (Acceptance of Deposit) Rules, 2014 CA S H R I N W A Y. J O Rule 19 – Applicability of Sec. 73 & 74 to eligible companies Mutatis mutandis all provisions apply to public deposits Rule 20 – Statement regarding deposits existing as on the date of commencement of the Act 2013 In Form DPT-4 Rule 21 – Punishment for contravention To company & every officer in default – Rs.5000 + Rs.500 per day of continuing period of contravention 32

LOANS GIVEN Sec. 67- Loans to employee to buy shares, CA S H R I N W A Y. J O Sec. 67- Loans to employee to buy shares, Loan to Employees upto 6 months of salary to buy shares of the company. 33

Sec.185 - Loan to Directors, etc. CA S H R I N W A Y. J O Applicable to Directors or any other person in whom he is interested No direct loan or advance or book debt in the nature of loan or provision of guarantee or security Loans not covered Form MBP-1 and Register u/s 189 Report nature of non-compliance, maximum amount outstanding and outstanding on balance sheet date 34

Sec.186 - Loan and Investment by Company CA S H R I N W A Y. J O No investment through more than two layers of Investment Companies No direct or indirect loan or guarantee or security or subscription exceeding limits Prior Approval by special Resolution for loan etc. No investment or loan etc. unless consented by all directors present in the meeting Prior approval of Public Financial Institution Interest Rate Purpose of loan given and its utilisation 35

CA S H R I N W A Y. J O Thank you! 36