Comprehensive analysis of receipts not considered as deposits

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There is a popular proverb, “Money brings more money”, which simply means that to earn money, you must have money. This proverb is relevant not only for individuals but for corporations as well. Corporates need money to fund their day-to-day activities and to fund future growth. There are multiple sources through which a corporate can raise money like issuance of equity shares, preference shares, factoring of debtors, through sales etc. Apart from these traditional sources of finance, there is one more way through which a corporate can raise funds i.e. Deposits. Section 73 to 76 of the Companies Act, 2013 deals with deposits.

Meaning:

Section 2(31) of the Companies Act, 2013 gives an inclusive definition of the deposits. It states that “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 this definition, every receipt of money, except that is prescribed, is a deposit. Thus, in order to identify what a deposit is, it is more important to find out which receipt of money is not considered as a deposit. This identification is important to comply with Rule 16 of the Companies (Acceptance of Deposits) Rules, 2014 which makes it mandatory for every company except Government companies to file a Return of Deposits in Form DPT-3 with MCA on or before 30^th June of every year for the preceding financial year. This return is filed not only to report receipts that are considered as deposits but also receipts that are not considered as deposits. Thus, if any company has receipts that fall within the ambit of receipts that are not considered as deposits, it is still mandatory for that company to file Return of Deposits.

Receipts of money that are not considered as deposits:

Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 gives an inclusive list of receipts that are not considered as deposits but still their reporting under non deposits is mandatory. This list includes the following receipts:

• Any amount received from Central, State or Local Government or Authority including any amount received on their guarantee. For example, any grant, or subsidy or loan received from the government.
• Any amount received from foreign government or foreign bank, multinational financial institutions, foreign authorities, foreign developmental financial institutions, foreign body corporates or foreign citizens in compliance with Foreign Exchange Management Act, 1999. For example, any amount received by a company from its foreign holding company.
• Amount received as loan or fund based/non fund based facility from Indian banks including State Bank of India, Regional Rural Banks, or any Subsidiary Banks.
• Amount received as loan or financial assistance from public financial institutions, regional financial institutions, scheduled banks, or insurance companies.
• Amount raised by issuance of Commercial Papers. Commercial paper is an unsecured, short-term debt instrument issued by corporates to finance its short-term working capital requirements.
• Amount raised through Intercorporate Loans (Loan taken by a company from another company).
• Any amount received pursuant to issue of securities in the form of application money or advance for the allotment of securities. However, if securities are not allotted within 60 days from the date of receipt of money and the amount is not refunded within 15 days after the expiry of said 60 days, then such amount shall be considered as deposits. It is important to note that any adjustment other than refund shall not be treated as refund.
• Any amount received from director or his relative. Loan from relative of a director in the case of a private company shall not be considered as deposits. However, in case of public company, loan from the relative of a director shall be considered as deposit. It is important to take a declaration from the director or his relative that the amount is not being out of funds borrowed by him. The term relative is defined under section 2(77) of the Companies Act.
• Amount raised by issue of bonds or debentures secured by creating a charge over the assets of the company excepts intangible assets. Thus, any bonds that are secured by creating a charge over intangible assets shall be termed as deposits.
• Debentures or bonds that are compulsorily convertible into shares of the company within 10 years.
• Listed non-convertible debentures. No timeline is prescribed in this case.
• Any amount received from an employee of the company not exceeding his annual salary in the nature of non-interest bearing security deposit. For example, Security deposits received by the company against any device given to the employee during the course of his employment.
• Any non-interest bearing amount received and held in trust.
• Advance received against supply of goods or services. It must be adjusted against supply of goods or services within 365 days of such receipt otherwise it will be treated as deposit. However, this concept of 365 days shall not apply in the case of advance which is subject matter of any legal proceeding.
• Advance received as consideration for an immovable property & adjusted against such property. There is no such provision of 365 days is this case.
• Security deposit for the performance of the contract for supply of goods or provision of services.
• Advance under long term project for supply of capital goods. For example, advance received from a construction company against supply of 100 cranes to such company over a period of 5 years.
• Advance towards consideration for providing future services in the form of a warranty or maintenance contract, if the period for providing such services does not exceed the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less. The maximum ceiling under this case is 5 years, and the advance received for providing future services for more than 5 years shall be termed as deposit.

For example, amount received in advance from customers by a mobile phone manufacturing company for providing repair and maintenance services over the period of next 2 years, shall not be considered as deposits.

• Advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;
• Advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications.

(If any amount mentioned in point no. 14, 15 & 17 becomes refundable on account of company being non-eligible to deal in that goods or services or properties, then such amount shall be deemed as deposit)

• Any amount brought in by the promoters of the company or their relatives by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank for the period for which loan is subsisting. However, such stipulation must be clearly mentioned in the loan agreement.
• Any amount accepted by a Nidhi company in accordance with the rules made under section 406 of the Companies Act, 2013.
• Any amount received by way of subscription in respect of a chit under the Chit Fund Act, 1982.
• Any amount received by the company under any Collective Investment Scheme (CIS).
• An amount of twenty-five lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding ten years from the date of issue) in a single tranche, from a person. Here startup company means a private company registered as startup with Department for Promotion of Industry and Internal Trade (DPIIT). Any amount in excess of twenty-five lakhs shall be considered as deposits.
• Any amount received by a company from Alternate Investment Funds (AIFs), Domestic Venture Capital Funds (DVCFs), Infrastructure Investment Trusts (InVIT), Real Estate Investment Trusts (REITs) and Mutual Funds registered with the SEBI.

Thus, any amount received by the company other than the receipts mentioned above shall be considered as deposits and the company shall be liable to comply with the provision of deposits in respect of such amount.

Consequences of Non-compliance:

Where a company fails to comply with the provisions related to deposits, the company shall be punishable with a fine which shall not be less than Rs. 1 crore or double the amount of deposits accepted by the company, whichever is less but which may extend to Rs. 10 crores; &

Every officer who is in default shall be punishable with imprisonment which may extend to 7 years and with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees.

We trust this information will help you navigate and ensure timely compliance. If you need any further assistance, please do not hesitate to contact us.

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Team Businezexcellence