SINGAL & COMPANY By : CA.

Gaurav Mittal +91-9971312299

CHARTERED ACCOUNTANTS E-Mail : gmittal@singalandcompany.com

Disclaimer
This article is being circulated for facilitating discussion among professional fraternity. Any person before making any decision or taking any
action should properly consult and take expert opinion. It is just a humble attempt to clarify and circulate the views of the author.
ACCEPTANCE OF DEPOSIT
Section 73 to 76 Simplified

The companies Act 2013 by way of Section 73 to 76 has bought many changes in
respect of Acceptance of deposits by company and the changes are applicable are on
Private Limited Companies also.
To understand the ambit of Section 73 to 76 we first need to know the definition of
Deposits under old Companies Act wiz a wiz to new Companies Act,2013.
Meaning of Deposit As per Companies Act 1956
As per explanation to Section 58A deposit means any deposit of money with, and
includes any amount borrowed by, a company but shall not include such categories of
amount as may be prescribed in consultation with the Reserve Bank of India.

Such exempted categories prescribed by the Central government in consultation
with RBI (through Companies (Acceptance of Deposit Rules), 1975) are as follows:

Amounts Received from the Government/Foreign Sources

Loans from Banking company/Financial Institution

Inter company deposits

Amount Received from Employee by way of Security Deposit

Amount Received from Agents

Advances against Orders (for supply of goods etc.)

Subscriptions to Securities

Calls in Advance of Shares

Trust Moneys

Amount Received from Directors or his relative

Amount Received from Members (only in case of Private co.)

Secured Bonds or Debentures

Convertible Bonds or Debentures

SINGAL & COMPANY By : CA. Gaurav Mittal +91-9971312299
CHARTERED ACCOUNTANTS E-Mail : gmittal@singalandcompany.com

Disclaimer
This article is being circulated for facilitating discussion among professional fraternity. Any person before making any decision or taking any
action should properly consult and take expert opinion. It is just a humble attempt to clarify and circulate the views of the author.
Promoters Unsecured Loans pursuant to stipulations laid down by the financial
institutions for granting the loan.


Also, section 3 (1)(iii) of the Companies Act, 1956 prohibits a private company from
the inviting and accepting any DEPOSIT from person other than its members,
directors or their relatives.


DEFINITION OF DEPOSIT UNDER COMPANIES ACT 2013

In addition of above following has been included in the definition of Deposits
1) Any amount received against subscription to any securities including share
application money provided the securities are allotted within 60 days from the date of
receipt of the application money or advance.
If the securities are not allotted within 60 days then the same should be refunded
within 15 days else the same shall be treated as deposit after completion of 15 days.

2) Any amount received from Director of the company provided the Director
furnishes a declaration that the amount given is not out of borrowed funds.

3) Any amount received from an employee of the company not exceeding his annual
salary in the nature of non interest bearing security.

4) Any amount received in the course of or the purpose of the business for the
following :-
a. As advance for the supply of goods or provision of services provided such
advance is appropriated against supply of goods or provision of service within
365 days from the receipt of such amount,
b. As advance received in connection with consideration for property under an
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 for supply of capital goods.
If any amount received under clause (a),(b) and (d) becomes refundable due to the
reasons that the company accepting money does not have necessary permission or
SINGAL & COMPANY By : CA. Gaurav Mittal +91-9971312299
CHARTERED ACCOUNTANTS E-Mail : gmittal@singalandcompany.com

Disclaimer
This article is being circulated for facilitating discussion among professional fraternity. Any person before making any decision or taking any
action should properly consult and take expert opinion. It is just a humble attempt to clarify and circulate the views of the author.
approval to deal with the goods or services then the amount received shall be deemed
to be a deposit after the expiry of 15 days from the date they become due for refund.
5) Any amount accepted by a Nidhi Company in accordance with rules made u/s 406
of the Act.


LET Us Understand the Concept of Acceptance of Deposits under Companies Act 2013
with the help of 2 practical examples:


EXAMPLE 1

ABC Private Ltd has a Share Capital of Rs 10 Crore and it wishes to raise another Rs
10 Crore by the following means:-

5 Crore from Government Agency, Financial institutions, Banks or by way of
Commercial Paper.
50 Lakhs by way of Share Application.
50 Lakhs from Director by way of Loan.
50 Lakhs from issue of bonds and debentures.
50 Lakhs from ICD.
25 Lakhs from Employees.
50 Lakhs as business advance from customer.
50 Lakhs as Advance against property Sale.
25 Lakhs as security deposit.
50 Lakhs from promoter or Relative.
50 Lakhs from relative of a Director.
50 Lakhs from a shareholder.


ABC Private Limited has sought your advice on the above means of finance.

ANSWER 1

5 Crore from Government Agency, Financial institutions, Banks or by
way of Commercial Paper.

The amount received or borrowed from any government agency or FI or
Bank or by way of CI is not covered under deposits.

Hence, company can raise money by way of above.


50 Lakhs by way of Share Application.

Company can raise money by way of issue of share if

SINGAL & COMPANY By : CA. Gaurav Mittal +91-9971312299
CHARTERED ACCOUNTANTS E-Mail : gmittal@singalandcompany.com

Disclaimer
This article is being circulated for facilitating discussion among professional fraternity. Any person before making any decision or taking any
action should properly consult and take expert opinion. It is just a humble attempt to clarify and circulate the views of the author.
a) Section 42 compliance i.e. Private Placement.
b) Allotment of share within 60 days of receipt of amount.
c) If not allotted then termed as deposit.

50 Lakhs from Director by way of Loan.

Company can receive a loan from a Director provided

Director gives an undertaking to the company that the loan given is from
own funds and not from borrowed money.

NOTE : Suppose if Director Net Worth is Rs 10 Crore and he has taken a
loan for Rs 4 Crore then he is eligible to give loan to a company up to Rs 6
Crore.

50 Lakhs from issue of bonds and debentures.

Company can raise money by way of bonds and debentures provided

Provided

a) Amount is secured by a first charge against property;

OR

b) Such bonds or debentures should be compulsorily convertible
into shares within 5 years.

50 Lakhs from ICD.

Inter corporate deposits are not covered in the definition of deposits,
hence company can use ICD as a means of finance.

25 Lakhs from Employees.

Yes, can be raised from employees provided amount received from
employee doesnt exceed by his total annual salary.

50 Lakhs as business advance from customer.

Yes, amount can be raised from customer however, such advance should
be adjusted with 365 days from the date of receipt of advance.

50 Lakhs as Advance against property.

Yes it can be raised, however such amount should be adjusted against
the property only.


SINGAL & COMPANY By : CA. Gaurav Mittal +91-9971312299
CHARTERED ACCOUNTANTS E-Mail : gmittal@singalandcompany.com

Disclaimer
This article is being circulated for facilitating discussion among professional fraternity. Any person before making any decision or taking any
action should properly consult and take expert opinion. It is just a humble attempt to clarify and circulate the views of the author.
25 Lakhs as security deposit.

Yes, as security deposits are out of the ambit of definition of deposits.
However, it is advised to receive security deposit under a specific
agreement.

Eg :- Security deposit against rent, security deposit against supply of
material or fulfillment of service.

50 Lakhs from promoter or Relative.

No, but if 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, namely:-
(a) the loan is brought in pursuance of the stipulation imposed by
the lending institutions on the promoters to contribute such
finance;

(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;

50 Lakhs from a shareholder.

No, Company cannot raise an amount from shareholders.

EXAMPLE 2

On 1
st
April 2014, following loans are standing outstanding in the books of M/s ABC
Pvt Ltd. The board has sought your advice regarding the treatment of them.

1) Rs 1 Crore from Director.
2) Rs 50 Lac from shareholder.
3) Rs 50 Lac from relative of a Director
4) Rs 50 Lac as a business Advance.
5) Rs 2 Crore as advance against property.
6) Rs 1 Crore as share application money.
7) Rs 2 Crore as ICD
8) Rs 1 Crore from unknown sources or non relatives.
SINGAL & COMPANY By : CA. Gaurav Mittal +91-9971312299
CHARTERED ACCOUNTANTS E-Mail : gmittal@singalandcompany.com

Disclaimer
This article is being circulated for facilitating discussion among professional fraternity. Any person before making any decision or taking any
action should properly consult and take expert opinion. It is just a humble attempt to clarify and circulate the views of the author.


SOLUTION 2

The Companies Act 2013, states that in case any Deposit is outstanding in the books
of accounts of company then same has to be reported to the ROC by 30
th
June 2014
and has to be repaid by 31
st
March 2015.

Here, the deposits are to be checked under the definition of Deposits as defined under
Companies Act 1956 instead of Companies Act 2013.

We Will take each case separately Now:

1) Rs 1 Crore from Director.

Any amount received from a Director is not a Deposit hence it need not be
reported and can continue to stay in books. The loan can be renewed on the
expiry of term, if there is no term then it is advisable to make a tenure for same.

2) Rs 50 Lac from shareholder.

Amount received from shareholders was not covered in the definition of deposits
under old Act; hence the same is not required to be reported.
However, Loan from shareholders cannot be renewed and has to be repaid back
on expiry of term. If there is no term than a term contract should be made now.

3) Rs 50 Lac from relative of a Director

Again as per old definition loan from relatives of Director were out of the ambit
of the definition of Deposits, Hence no reporting required however same cannot
be renewed and has to be repaid back on expiry of term. If there is no term than
a term contract should be made now.

4) Rs 50 Lac as a business Advance.

Business Advance is excluded from the deposits, hence there is no need to
report the same and the amount can continue to appear in books.

The 365 days condition is not applicable here. However genuineness of the
transaction is to be checked. It should be checked whether there are any
transaction happening between the parties.

If not, then it is advisable to refund the amount.

5) Rs 2 Crore as advance against property.

Same as above it is not a deposit, hence no reporting necessary.


SINGAL & COMPANY By : CA. Gaurav Mittal +91-9971312299
CHARTERED ACCOUNTANTS E-Mail : gmittal@singalandcompany.com

Disclaimer
This article is being circulated for facilitating discussion among professional fraternity. Any person before making any decision or taking any
action should properly consult and take expert opinion. It is just a humble attempt to clarify and circulate the views of the author.
6) Rs 1 Crore as share application money.

Share Application money is not a deposit; hence there is no need to report the
same.

However, all the pending application money appearing in books of Accounts
should either be allotted or refunded back to the subscribers. As in many cases
share application money is standing outstanding since many years and as per
rules outstanding share application money should be deposited in Investor
Protection Fund Account.

So it is advised either to refund or allot the amount in current financial year.

7) Rs 2 Crore as ICD

ICD are exempt from the definitions of Old as well as New Companies Act,
hence company can freely accept ICD.

8) Rs 1 Crore from unknown sources or non relatives.

We must have faced a situation under some amount is outstanding in books of
accounts, however the company is unable to ascertain to whom that amount
belong to.
Such amount received or unexplained money or money standing in books from
non relatives needs to be reported to ROC by 30
th
June 2014, as they get
covered under the definition of Companies Act. The said amount is to be repaid
by 31
st
March 2015.