Deposits

INTRODUCTION:

While incorporating a company, a businessman is always fumbled with a question that what are the different ways in which company a can raise the fund. Generally, a company is formed with a purpose of expansion and expansion usually needs one basic step of raising fund. The companies act and its rules does not allow a company to raise funds from any random way rather it needs a thorough understanding of statutory requirements while getting funds in company. One should be aware of the fundamental rules regarding the ways in which company can raise funds. Thus, here in this blog we will throw a light upon those ways from where a company can avail funds for its operations and expansions.

Generally, a PRIVATE LIITED COMPANY as defined in Section 2(68) of companies act, 2013 is prohibited to accept deposits from public. Thus, a private limited company cannot raise funds from public at large through deposits unlike the public company.

So now, the basic question arises here is that what do we mean by DEPOSITS. What are the transactions that are to be considered as deposits either directly or indirectly and what are the compliances requirements on receiving or raising funds by a company.

DEPOSITS:

Section 2 (31) of Companies Act and Rule 2(1)(v) defines the deposits as, ‘Deposit’ includes any receipt of money by way of deposit or loan or in any other form, by a company.

KINDS OF DEPOSITS:

1. Acceptance of deposit from Members: Any company (whether private or public) can accept deposits from its members, subject to the passing of a resolution in general meeting and the commencement of this Act or payment of interest on such deposits. [Section 73]
2. Acceptance of deposits from the Public: Only a public company, having a net worth of not less than Rs. 100 Cr. OR a turnover of not less than Rs. 500 Cr., can accept deposits from the Public. Such kind of public company, shall be referred to as ‘Eligible Company.

Which means any money raised by a company shall be considered as deposit. However, there are certain exceptions to this definition. The following exceptions shall mean that if company raise fund through any other way as mentioned below shall not be considered as deposits. Thus, we can say that a private limited company, which is prohibited from accepting deposit from public can raise fund by following any of the below mentioned ways which shall not be considered as deposit.

1. Any amount received from the Central Government or a State Government , or any amount received from any other source whose repayment is guaranteed by the Central government or a State government, 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;

Analysis: A Private limited company, if received any funds from state govt. or state govt. or from any other source shall not be considered as deposits provided the repayment of which must be guaranteed by CG or SG.

2. Any amount received from Foreign Governments, foreign or international banks, multilateral financial institutions, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of Foreign Exchange Management Act, 1999 (42 of 1999) and rules and regulations made there under;

Analysis: If a private limited company received funds from any international governments/banks/financial institutions/foreign national by following the prescribed rules under respective acts shall not be considered as deposits.

3. Any amount received as a loan or facility from any Bank or FI;

Analysis: A private limited company can avail loan facility from any Bank or PFI and this shall not be considered as deposits

4. Any amount received as a loan or financial assistance from Public Financial Institutions notified by the Central Government in this behalf in consultation with the Reserve Bank of India or any regional financial institutions or Insurance Companies or Scheduled Banks as defined in the Reserve Bank of India Act, 1934

Analysis: Under certain circumstances, the central governments may announce some assistance to certain industries in order to boost the particular sector or in order to boost the certain region of state. Such financial assistances announced by CG in association with RBI or any other financial institution shall not be considered as deposits.

5. Any amount received against issue of commercial paper or any other instruments issued under guidelines or notification issued by RBI.

Analysis: A private limited company can raise funds through acquiring commercial paper or any other instruments which is approved by RBI.

6. Any amount received by a company from any other company (Inter-corporate Deposits);

Analysis: A private limited company can avail loan facility from any other company. This shall be termed as inter corporate loan provided a company shall report such transaction properly into their annual returns.

7. Any amount received towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, provided that securities are allotted within 60 days from the date of receipt of money failing which, money should be refunded within 15 days after the expiry of 60 days, otherwise it shall be treated as deposit

Analysis: A company which has received funds towards any subscription of shares or securities shall issue the respective shares or securities within 60 days of receiving money. If company fails to issue such securities than such subscription money received shall be returned with 15 days after the expiry of 60 days. If company fails to repay it within 15 days then it shall be considered as deposits.

8. 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 it is not being given out of borrowed funds;

Analysis: A company can raise funds by borrowing funds from its directors provided the director must not lend this money by borrowing from other sources. In short, a director cannot give loan to a company by availing loan from outside. He has to give the loan from his own funds.

9. 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 referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within ten years, provided the amount of borrowing is not more than the market value of such assets assessed by a registered value;

Analysis: A company can raise funds by issuing bonds or debentures however the same must be converted into equity shares within 10 years and the amount raised cannot be more than the market value of such securities. The valuation must be carried out by registered valuer.

10. 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 regulations made by Securities and Exchange Board of India

Analysis: A company can raise funds by issuing non-convertible debentures provided no charge has been created on the asset of the company in this regards.

11. 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;

Analysis: A company raise funds from its employees by way of any contract which shall no exceed the annual salary of employee.

12. Any non-interest bearing amount received or held in trust;

Analysis: A company can raise fund from any trust particularly formed for a certain purpose which must be non-interest bearing.

13. Any amount received in the course of, or for the purposes of the business of the company, such 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 three hundred and sixty five days from the date of acceptance of such advance:

Analysis: A company can ask for advance against its goods or services provided the company shall supply the goods or service with 365 days from the date of receiving advances.

14. Any amount received in the course of, or for the purposes of the business of the company which are as follows shall not be considered as deposit provided that if the following amount becomes refundable on account of not getting the requisite approval/permission, then the money should be refunded within 15 days from the date it becomes due for refund, otherwise it shall be treated as deposit;

• as an advance, accounted for in any manner whatsoever, received in connection with consideration for an immovable property
• as a security deposit for the performance of the contract for supply of goods or provision of services for supply of capital goods
• 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 five years, from the date of acceptance of such service whichever is less;
• as an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;
• as an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications

15. Last but not the least, if the promoter of company bought funds for the following purposes shall not be considered as deposits;

• The loan is brought in pursuance of the stipulation imposed by the lending FI or bank on the promoters to contribute such finance
• The loan is provided by the promoters themselves or by their relatives or by both and not by their friends and business associates; and
• The exemption shall be available only till the loans of financial institution or bank are repaid and not thereafter.

WHAT ARE THE COMPLIANCES ONE NEEDS TO FOLLOW WITH REGARDS TO DEPOSITS?

Filing of form DPT-3:To safeguard the interest of the public at large who has invested in a company by way of deposits, MCA has made it mandatory for every companies to file form DPT-3 annually declaring details of those transactions which are treated as deposits and also those transactions which are not to be considered as deposit.

Accordingly, a sub-rule (3) was inserted after sub-rule (2) in Rule 16A of the Companies (Acceptance of Deposits) Rules, 2014 which reads as follows:

“Every company other than Government company shall file a onetime return of outstanding receipt of money or loan by a company but not considered as deposits, in terms of clause (c) of sub-rule 1 of rule 2 from the 01st April, 2014 to 31st March, 2019, as specified in Form DPT-3 within “ninety days from 31st March, 2019” along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.

Who is exempt from filing this form DPT-3?

Every company except a government company must file this return.  Additionally, as per Rule 1(3) of the Companies (Acceptance of Deposits) Rules 2014, the following companies are also exempt:

• Banking company
• Non-Banking Financial Company
• A housing finance company registered with National Housing Bank
• Any other company as notified under proviso to subsection (1) to section 73 of the Act

Types of DPt-3

DPT 3 has to file in two ways:

• One time return
• Annual return

The due date of filing DPT-3:

• For One time DPT-3: The one-time return has to be filed for a period starting from 1st April 2014 to 31st March 2019. Therefore, all receipts received in this period and outstanding as on 31st March 2019 had to be reported.
• For Annual DPT-3:

The due date for filing the annual return is 30th June of every year. For example, for FY 2019-20, the due date for DPT-03 is 30th June 2020.

There is no requirement to file NIL return of form DPT-3 if company has not incurred any transaction as mentioned above.

CONCLUSION:

The above explanations enables a company to get an idea about the different ways in which it can raise the funds and it also helps professionals like company secretary to form an opinion about certain transaction whether they are to be treated as deposits or not and where to report such transactions.