Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Tuesday, March 7, 2017

Loans and Deposits from Members or Directors in a Private Company

Loan From Members

Apart from share capital of company, loans are major source of finance for company. A company can raise its funds from various sources like accepting public deposits, loan from financial institutions or banks. However Companies Act 2013 strictly prohibits Private Companies accepting funds by way of public deposits. 

In Companies Act 1956 a private company was allowed to accept loan from Director, Shareholders or Relatives of Directors but Companies Act 2013 specifically defines any Loans taken are regarded as 'deposits'. As per the definition of the term 'deposit' under section 2(31) : "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;"

However, as per Rule 2(c)(viii) of the Companies (Acceptance of Deposits) Rules, 2014 (the "Deposit Rules") the term 'deposit' shall not include any amount received from a person who, at the time of the receipt of the amount, was a director of the company, provided that the director from whom money is received, furnishes a declaration in writing to the company at the time of giving the money, to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others.

Loan or an amount received by the company from its director is not regarded as a 'deposit' if the following conditions are fulfilled:

(a) At the time of receipt of the amount by the company, the lender was a director of the Company. This doesn’t state that the exemption applies "as long as the payer is a director”. The loan will continue to be exempt even after the person concerned ceases to be a director on any account whatsoever.

(b) The Director furnishes to the Company a declaration in writing.

(c) Director at the time of giving money should give declaration  that amount so advanced is not given out of the funs acquired by the director from others as loan or deposit or out of borrowing. The declaration is to be given before the loan transaction is complete. 

This Exception to Deposits rules 2014 is applicable to both Private as well as Public Companies.

As per MCA notification dated 05/06/2015 section 180 of companies act 2015 is no more applicable on Private Limited Companies. 

Hence there is no requirement to file a special resolution in AGM for authorization where  the money to be borrowed, together with the money already borrowed by the company even if it exceeds aggregate of its paid-up share capital and free reserves.

Deposit From Members

Any Loans taken are regarded as 'deposits' under the Companies Act, 2013. As per the definition of the term 'deposit' under section 2(31) : "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;"

According to provisions of Section 73, a company whether private or public can accept deposits from its members only subject to compliance of the Deposit Rules. But deposits from persons other than members can now be accepted by "Eligible Companies" only. 

Rule 2(1)(e) of the Rules Eligible Company is a public company having a net worth of Rs. 100 crores or more or turnover of Rs. 500 crores or more can accept deposits from persons other than members. The eligible company should obtain the prior consent of the company in general meeting by way of special resolution and also filed the said resolution with the Registrar of Companies before making any invitation to the public for acceptance of deposits. 

Thus, all private limited companies and "Non-eligible companies" can accept deposits only from members.

Quantum of deposit that can be accepted by a Private Limited company

As per notification MCA GSR 464(E), dated 5th June, 2015, a private limited company can accept deposits only from its members up to 100% of its paid up capital and Free Reserves & Securities Premium account provided it files with the Registrar information about such acceptance.

The above limit of 100% of paid up share capital & free reserve should be calculated based on the last audited Financial Statements adopted by the members.

The pre-condition for acceptance of deposits from members

Deposits can be accepted from persons, whose name appears on the Register of Members of the Company. However where a person whose name appears in the Register of members has transferred his shares but the transfer is pending for registration, then the Company should repay deposits which it has accepted from such members.

The company should pass an ordinary resolution preferably at each AGM seeking authorization for acceptance of deposits and such resolution is to be filed with ROC within 30 days of passing the resolution.

The deposits should be subject to such rules as may be prescribed in consultation with the Reserve Bank of India. 

Secretarial steps for private limited companies and non-eligible companies for acceptance of deposits

The following are the various steps which a private limited company and non-eligible company have to fulfill in order to comply with the provision for acceptance of deposits from the members.

  • Hold a Board Meeting for proposing acceptance of fixed deposit. In the said Board Meeting itself, approve the Notice for holding general meeting of the company for obtaining the approval of the shareholders for the said proposal.
  • Hold the general meeting of the company and obtain the approval of the shareholders by means of special or ordinary resolution for authorizing the Board of Directors to accept the deposits.
  • To file a copy of such resolution within 30 days of date of passing the resolution with the Registrar of Companies in e-form MGT 14.

  • To open a separate a bank account called ‘Deposit Repayment Reserve Account’ with Schedule Commercial Bank and depositing amount not less than 15% of the deposit maturing during the Financial Year. Certifying that the company has not committed any default in repayment of deposit and interest thereon.
  • To hold one more Board Meeting to obtain the approval for the draft Circular in Form DPT-1 of the Deposit Rules. The said Draft Circular should be signed by majority of the Directors of the company.
  • To file a copy of such signed circular with the Registrar of Companies in Form GNL-2 for registration.

  • Points to remember in the procedure of acceptance of deposits

  • To ensure that the Circular which is to be issued for acceptance of deposits is sent either by electronic mail or registered post AD or by speed post to the members of the company only and not to public or other persons.
  • To appoint Deposit Trustees for creating security for the secured deposits, if any by executing a  Deposit Trust Deed in Form DPT-2 at least 7 days before issuing the Circular.
  • To enter into contract with Deposit Insurance services providers at least 30 days before the issue of the Circular.
  • To issue deposit receipts in the prescribed format and under the signature of an officer duly authorized by the Board within a period of two weeks from the date of receipt of money or realization of the cheque
  • To make entries in the Register of Deposits accepted Rules within 7 days from the date of issuance of the deposit receipt and arrange to get such entries authenticated by a Director or Secretary of the Company or by any other officer authorized by the Board
  • To file the return of deposit in Form DPT-3 by furnishing the requisite information contained thereon as on 31st day of March each year duly audited by the Auditors before 30th June every year.

Contributed by Anita Kanwar


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