Amounts not considered as Deposit, Companies Act 2013
As per section 2(31) deposit, is nothing but receipt of money by way of deposit or loan or in such other form by a company. But this does not include such categories of receipt which are prescribed by the Companies Act in consultation with the RBI (Reserve Bank of India), which are specified below:
Any amount received from the government or guaranteed by the government, foreign government/foreign bank. Any amount received from a company by a company. Subscription to securities and call in advance.
(i) any sum that is received from the Central Government or a State Government, or from any other source whose reimbursement is guaranteed by the Central Government or a State Government,
or any sum that is received from a local authority, or any sum that has been received from a statutory authority constituted under an Act of Parliament or a State Legislature;
(ii) any sum which is accepted or received from foreign Governments, foreign or international banks, multilateral financial institutions, etc. subject to the provisions of Foreign Exchange Management Act (FEMA), 1999 and rules and regulations made thereunder;
(iii) any sum which is received as a loan or credit or facility from any banking company or State Bank of India or its subsidiary banks or from a notified baking institution or from any co-operative bank;
(iv) any sum accepted or received as a loan or also a financial assistance from Public Financial Institutions;
(v) any sum that is received against providing of commercial paper or any other instruments that are provided in accordance with the guidelines or notifications recommended and provided by the Reserve Bank of India;
(vi) a sum received by a company from any other company;
(vii) a sum which is received against an offer which is made towards subscriptions of securities as share application money or the advance which was made towards the allotment. But the same shall be considered as a deposit if;
- Company fails to allot such securities within a period of 60 days,
- and the amount have not been refunded within a period of 15 days from the expiry of the aforementioned 60 days.
It is to be noted that any adjustment made to such amount for any other purpose shall not be treated as a refund, changing the nature of such amount received to ‘deposits.
Say, XYZ Pvt. Ltd. received an amount of INR 10,00,000 from Mr. Y by way of share application money and the same was not allotted within a period of 60 days. But the company adjusted the same as a loan received from such person, instead of refunding the same within a period of 15 days. Now, this shall be treated as a deposit under the Companies Act.
(viii) any amount received from a director or relative of the director of the company, during their directorship, provided such director should give a declaration to the company that such amount is not given out of any fund acquired by him through acceptance of loans or borrowing or deposits from others and the company shall disclose the details of such accepted fund in the Board’s Report;
(ix) any amount which has been raised by way of issuing bonds, or debentures secured by first charge assets as referred to in Schedule III of the Companies Act, excluding the intangible assets of company or bonds or debentures which shall be converted compulsorily into shares of the company within 10 years then such fund shall not be considered as deposits. But it is to be noted that the amount of such bonds or debentures should not exceed the market value of such underlying assets which is assessed by a registered valuer.
It further states that, as per Rule 2(1)(c)(ixa) of the Companies (Acceptance of Deposits) Rules, any amount which has been raised by the issue of non-convertible debentures which does not establish any charge on assets of the company but is listed on the recognized stock exchange as per applicable regulations provided by SEBI;
For example, ABC Ltd. raised INR 5,00,000 through the issue of non-convertible debenture and the same does not imply a charge on assets of the company and is also listed on the stock exchange namely NSE pertaining to the exchange regulations that are applicable duly and are made by SEBI. Hence, the said amount raised by ABC Ltd. shall not be considered as deposits in terms of the rule stated here.
(x) any amount which has been received from a current employee of the company, and such amount does not exceed his annual salary as per the contract of employment with the company;
For example, Mr. O is an employee of XYZ Ltd. The company received an amount of INR 5,00,000 from Mr. O, and he is drawing an annual salary of INR 3,50,000 under a contract of employment from the company in the nature of a non-interest-bearing security deposit. Such amount shall be considered as a security deposit as the amount received is more than his annual salary under a contract of employment with the company in the nature of a non-interest-bearing security deposit.
(xi) any amount which is a non-interest bearing one that is accepted or received or held in trust;
(xii) any amount which is received by the company in the course of business,
- as advance for the supply of goods or services, and it is appropriated against such delivery within a period of 365 days from the date of acceptance of such amount. Exceptions to 365 days shall apply if the same is a subject matter of any legal proceedings in court,
- advance which has been received with respect to consideration for the sale of immovable property,
- security deposit for the performance of a contract (supply of goods or services),
- advance received with respect to long term projects for supply of capital goods (except immovable property of (a)),
- advance received for any future services in the form of warranty or maintenance contract and the period for such services providing does not exceed 5 years or period prevalent as per the common business practice,
- a sum received as a first or advancewhich was accepted and as allowed by any sectoral regulator or in accordance with directions of Central or State Government,
- a sum that is received as an advance for an offering madefor the publication subscription, whether in print or in online or in electronic to be adjusted against receiving of such publications.
It is to be further noted that if any of the above-stated amounts in a or b or d becomes refundable due to many reasons from the part of the company, without any interest, and such amounts are not refunded within a period of 15 days from the date on which such amount becomes due for refund, then such amount shall be deemed to be a deposit.
(xiii) any amount which is brought in by promoters or their relatives or both of the company by way of unsecured loan due to a stipulation which was imposed on them by lending institutions or bank or financial institutions and this exemption shall be valid only up to the repayment of such lenders amount and not thereafter.
(xiv) any sum that is accepted or received by a Nidhi company in accordance with the rules made under section 406 of the Act;
(xv) any sum that is received by way of subscription in respect of a chit under the Chit Fund Act, 1982;
(xvi) any sum that is accepted or received by the company under any collective investment scheme for complying with regulations framed by the Securities and Exchange Board of India;
(xvii) an amount of INR 25,00,000 or more which is received from a single person as a single portion, by a start-up company by way of convertible note which enables the conversion of such note or amount paid into equity shares or shall be repaid within a period not exceeding 10 years from the date of issue.
And for the reason of the same a start-up company means, a private company which is formed and registered under the Companies Act, 2013 or Companies Act, 1956 and recognized as such in accordance with Notification Number G.S.R. 127 (E), dated 19-02- 2019 that was provided and published by the Department for Promotion of Industry and Internal Trade;
(xviii) any amount received by a company from Alternate Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts, Real Estate Investment Trusts, Mutual Funds registered with the SEBI in accordance with regulations made by it.
It shall be further noted that, if any private companies have received amounts from their members, directors, or their relatives before 1st of April 2014, then by virtue of General Circular No. 5/2015, dated 30-03-2015, such amounts shall not be treated as deposits. But the same shall be allowed under the Companies Act if the company disclose such figure and the accounting head in the notes to financial statements. And any renewal of such amount received or acceptance of fresh deposits on or after the said date of 1st April 2014 shall be treated in accordance with the Companies Act 2013 and the rules pertaining to the same.