Acceptance of deposits

Objectives & Agenda :

Companies procure funds from various stakeholders by way of debentures, bonds, etc. In addition, they procure funds by way of inviting / accepting deposits from the public. In order to protect the interest of the depositors, stringent provisions are laid down in Companies Act, 2013 read with Companies (Acceptance of Deposits) Rules. This webinar provides an overview of the term deposits, inclusions and exclusions, eligible companies to accept deposits, conditions for acceptance of deposits, procedural aspects, penal provisions and income tax implications.

1. Acceptance of Deposits CS. Meenakshi Jayaraman DVS Advisors LLP India-Singapore-London-Dubai-Malaysia-Africa www.dvsca.com

2. Credits and Acknowledgments Sundar Rajan S

3. Legends used in presentation AGM Annual General Meeting BOD Board of Directors CAD Companies (Acceptance of Deposits) CG Central Government FEMA Foreign Exchange Management Act FR Free reserves FS Financial Statements FY Financial Year IFSC International Financial Services Centre ITA Income Tax Act NBFC Non-banking Financial Companies PUC Paid-up share capital ROC Registrar of Companies RBI Reserve Bank of India SEBI Securities and Exchange Board of India SG State Government SP Securities premium account The Act Companies Act, 2013

4. Presentation Schema

5. Overview

6. Meaning of certain terms Ordinary resolution is sufficient provided such Company is accepting deposits within the limits specified u/s 180(1)(c) Sec. 180(1)(c) – Existing + proposed borrowings <= aggregate of paid-up capital, free reserves and securities premium of the Company

7. Meaning of Deposits – Rule 2(1)(c ) of CAD Rules Deposit includes any receipt of money by way of deposit or loan or in any other form, by a company,  but does not include  ,

8. Contd.

9. Contd. If the amount received under (a), (b) & (d) above becomes refundable due to lack of necessary permission or approval to deal in the concerned goods or services, then the amount received shall be deemed as deposit on the expiry of 15 days from the date they become due for refund

10. Contd.

11. Prohibition on accepting deposits – Sec. 73 of the Act Deposits under Companies Act are categorised into two No company other than eligible companies shall accept or renew deposits from the public Companies shall however accept deposits from its members provided the terms and conditions specified in the CAD Rules and in the Act are fulfilled However certain exemptions from fulfilling the terms and conditions are available to Private limited companies and specified IFSC public Company The provisions of this section are not applicable to banking company and non-banking financial Companies as defined in the RBI Act, 1934 and such other companies as the CG may specify after consultation with RBI

12. Conditions Company accepting deposits shall satisfy the following: Approval from members by passing resolution in general meeting Terms and conditions as specified in Rule 3 of CAD Rules, 2014 (applicable to both deposits from members and public) Conditions specified in Section 73(2) of the Act

13. Terms and conditions – Rule 3 Common points – Applicable to all companies such deposits do not exceed 10% of the aggregate of paid-up share capital, free reserves and securities premium of the company such deposits are not repayable within 3 months from the date of such deposits or renewal AND Only persons authorised in writing by the companies to solicit deposits on its behalf shall be entitled to brokerage

14. Specific points – Limits on deposits i. Eligible Company (other than government company) Deposits from members Existing + proposed deposits on the date of acceptance should be <= 10% of (PUC + FR + SP) Any other Deposits Existing + proposed deposits (excluding deposits from members) on the date of acceptance should be <= 25% of (PUC + FR + SP) ii. Eligible Company (being a government company) Any Deposits Existing + proposed deposits on the date of acceptance should be <= 35% of (PUC + FR + SP) Acceptance shall also include renewal of deposits

15. Specific points – Limits on deposits iii. Company other than eligible company Deposits from members Existing + proposed deposits on the date of acceptance or renewal should be <= 35% of (PUC + FR + SP) Exceptions to the above limit The above limit shall not apply to the following companies: All the companies accepting deposits shall file the details of monies so accepted with ROC in Form DPT-3 i. ii. iii.

16. Specific points – Credit rating Eligible Company

17. Conditions under Section 73 (2) Where deposits are partially secured or not secured, then such deposits shall be termed as unsecured deposits and to be quoted in all documents inviting deposits

18. Exceptions to Section 73(2) Clauses ‘a’ to ‘e’ of sub-section 2 of Section 73 shall not apply to the following companies: All the companies accepting deposits shall file the details of monies so accepted with ROC in Form DPT-3

19. Rule 4 – Particulars of advertisement or circular Specific points i. Eligible Company ii. Company other than eligible company

20. General points Date of issue of advertisement – Date of issue of newspaper in which the advertisement appears Effective date of issue of circular – Date of dispatch of circular

21. Appointment of trustees

22. Other conditions under Section 73

23. Repayment of deposits accepted before commencement of the Act – Section 74 Where amount of deposits or part thereof or interest due remains unpaid or becomes due, on the date of commencement of the Act, the Company shall Renewal of any such deposits shall be done only in accordance with the provisions of Chapter V and the rules made thereunder Tribunal may allow extension of time to repay the deposit when Company makes application on this regard Contravention of the section – Section 74(3) Company Officer-in-default Fine: Rs. 1 – 10 Crores Fine: Rs. 25 lakhs – 2 Crores (or) Imprisonment: Upto 7 years (or) both

24. Damages for fraud – Section 75

25. Deposits from public – Section 76

26. Security for deposits

27. Punishment for contravention – Section 76A Company Officer-in-default Fine: Rs. 1 Crore (OR) twice the deposit amount accepted, whichever is less Maximum fine may extend to Rs. 10 Crores Fine: Rs. 25 lakhs to 2 Crores AND Imprisonment: Upto 7 years If proved that the officer has willfully contravened the provisions, then, he/she shall also be liable u/s 447 For contravention of the provisions of Section 73 or Section 76 or Rules made there under: Acceptance of deposits or allowing any other person to accept deposits in contravention of manner or conditions prescribed; Fails to repay deposits or part thereof or interest within the time prescribed there under; Fails to repay deposits or part thereof or interest within such further time allowed by Tribunal

28. Other provisions under CAD Rules

29. Return of Deposits Annual return One-time return Form DPT-3 should be filed on or before 30 th June of every year by all Companies accepting deposits Particulars of deposits as on 31 st March of that year duly audited by the auditor of the Company shall be furnished Form DPT-3 should be filed by all Companies except Government Company having outstanding borrowings (from 01-04-2014 to 31-03-2019) not considered as deposits under CAD Rules It should have been filed on or before 29 th June, 2019 (within 90 days from 31 st March, 2019) The above Form DPT-3 for one-time return is not required to be filed if there is no outstanding borrowings as on 31st March, 2019

30. Income tax implications under ITA, 1961

31. Judicial precedents Bimla Kothari v. Unitech Ltd. [2016] 75 taxmann.com 151 (NCLT - New Delhi)

32. Thank You DVS Advisors LLP India-Singapore-London-Dubai-Malaysia-Africa www.dvsca.com Copyrights © 2019 DVS Advisors LLP