Friday, August 19, 2016

Changes In Rules of Acceptance of Deposits under CA

Ramit Chitkara
Changes In Rules Governing Acceptance of Deposits under Companies Act (CA), 2013


The Ministry of Corporate Affairs, vide its notification dated June 29, 2016 has made various amendments in the Companies (Acceptance of deposits) Rules, 2014 and issued the Companies (Acceptance of Deposits) Amendment Rules, 2016. The amendment in the principal rules comes into force on the date of their publication of in official gazette, i.e. June 29, 2016.

The extant rules provide a negative definition of the term ‘deposit’ under the Companies Act, 2013, which covers any receipt of money by way of deposit or loan or in any other form by any Company, except which are specifically exempted.

The key highlights of the amendments are as follows:

a) The existing sub-clause (ix), of rule 2(1)(c) Compulsory convertible bonds or debentures convertible within a period of five years are included in ‘exempt Deposits’, under the extant rules, Now, it covers these compulsorily convertible bonds or debentures convertible within a period of up to ten years (instead of five years) in ‘exempt Deposits’.

b) Issuance of listed non-convertible debentures as per the regulations made by SEBI, is also gets covered under the exempt deposits.

c) The coverage of exempted deposits, in course of, or for the course of business, has been enhanced by adding on the following instances:

i) an advance towards consideration for providing future services in the form of warranty/maintenance contract, provided the period for providing such services is within the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less;

ii) an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;

iii) an advance for subscription towards publication (in print/in electronic) to be adjusted against receipt of such publications;

d) any amount received by the company under any collective investment scheme in compliance with SEBI Regulations or by way of subscription in respect of a chit under the Chit Fund Act, 1982 has been kept outside the purview of deposits.

e) Relaxations for startup Companies from the compliance of acceptance of deposits rules:

An amount of more than Rs 25 lakh received by a Startup Company has been exempted from being treated as deposit provided the amount is in the form of convertible note and is convertible into equity shares or repayable within 5 years form the date of funding.

f) Relaxations on acceptance of deposits by eligible Companies from members

i) Limit for acceptance of deposits:

As per extant rules a Company is not allowed to accept/renew the deposits from members if the amount of outstanding deposits is more than 25% of (paid up share capital and free reserves). Now, the said limit has been enhanced to 35%, however the amount of securities premium remains unavailable for calculating such limit.

Further, private companies have been relaxed to accept deposits from members in compliance of the provisions under the Act, upto 100% of the paid up share capital, free reserves and securities premium.

ii) Credit Rating:

The requirement for obtaining annual credit rating for the Companies accepting deposits from public under the Act, has been aligned as specified for fixed deposits for NBFC’s under the Non-Banking Financial Companies Acceptance of Public Deposits Reserve Bank Directions, 1988, wherein earlier the rating was required to be obtained from any of the six prescribed agencies only.

g) Now, every eligible Company inviting deposits from public, in addition to publication of the advertisement, shall also be required to place the advertisement at its website of the Company. Further the form of advertisement will also contain a DISCLAIMER by ROC and MCA about the financial soundness of any scheme and correctness of statements therein.

h) Requirement of disclosures in Financial Statement:

All Companies (other than a private Companies) shall disclose in its financial statements about the money received from the director and the Private Companies shall disclose the money received from directors, or relatives of directors.


The amendment in the rules, basically expands the list of exempted deposits under the extant rules, while bridging and ironing-out the related practical aspects in the matter, it also provides the much needed relief to the startups and private companies by relaxing the provisions to some extent.

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