Deposits & Private Companies- Companies Act, 2013

Loans from shareholders, directors & their relatives has been a major & easy source of finance for many private companies. However, with new Companies Act, 2013 bringing all such loans, except from directors, under the ambit of deposits, all this is set to change. Accepting deposits/loans from relatives is no more possible for private companies, while those from shareholders will be subject to stringent provisions of Chapter V of the Act. Meanwhile, to add more twist, MCA few days ago came up with draft notification, which may take the position back to pre-commencement days of new Act, for private companies having less than 50 members. As this is only draft & not final notification, here we have discussed the provisions of new Act at a glance, as it stands today (on 5th July, 2014). What is Deposit? Any receipt of money by company, excluding: i. Received from Director (with declaration that amount is not given out of borrowed funds) ii. Received from another company iii. Received from Banks, Financial Institutions etc. iv. Received from Foreign Govt, Banks, Collaborators, Foreign Citizens, Person reident outside India subject to FEMA, 1999 v. Received from Govt, Local Autority etc. vi. Recevied against Commerical Papers vii. Received as security deposit for performance of contract viii. Application money for issue for any security (upto 60 days) ix. Received against bonds & debentures x. Non-interest bearing secutiy deposit from employee (upto annual salary) xi. Received as advance for providing goods or services (upto 365 days*) xii. Amount brought in by promoters or their relatives, if required by banks to do so xiii. Received by Nidhi company * Limit of 365 days not to apply, in case litigation is underway or long term contract. What to do with old Deposits (existing as on 31.03.2014)? i. File DPT-4 with RoC upto 31.08.2014 ii. Repay such deposits upto 31.03.2015* Acceptance of Deposits after 01.04.2014 (Can be accepted only from members) i. Pass Resolution in General Meeting ii. Appoint Trustee** of Depositors (Trust Deed in Form DPT-2) iii. File copy of Circular (signed by majority of Directors) with RoC After 30 days i. Issue Circular to ALL members by post or eForm DPT-1 (Fresh circular for each F.Y.) ii. Accept Applications from depositors (containing declaration that deposit is not made out of borrowed money) iii. Furnish receipt to depositor within 21 days (stating Rate of Intt & Date of repayment) iv. Maintain Register of Deposits (updated within 7 days), with prescribed particulars. * Extension may be granted by Tribunal on sufficient grounds ** Trustee shall not be Director, Employee, their relatives; debtor, gurantor or having material pecuniary relationship with company. Other Conditions Tenure 6 months to 36 months   (3-6 months for Short Term Req)       Limit 25% of Capital+Free Reserves   (10% for Short Term Req)       Max Interest & Brokerage as prescribed by RBI for NBFCs           Deposit Repayment Reserve 15% of deposits maturing in Current F.Y. & next F.Y. (This amount will be kept in a separate bank account)       Pre-mature Repayment Reduce Intt. By 1%       Deposit Insurance Agreement at least 30 days before issue of circular   Insurance shall be for at least Rs. 20,000 per depositer (incl. Intt.)       Secured Deposits Charged Assets should be valued by Registered Valuer       Penal Interest 18% (for overdue period)