Company Law insights
from India Tax & Regulatory Services
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MCA issues Companies (Acceptance of Deposits) Amendment Rules, 2016
July 3, 2016
In brief
This insight provides an overview of the Companies (Acceptance of Deposit) Amendment Rules, 2016.
The Ministry of Corporate Affairs (MCA) has amended and expanded the list of Exempted Deposits under the Companies (Acceptance of Deposit) Rules, 2014. These amendments shall come into force on the date of their publication in the Official Gazette.
In detail
The MCA has issued the Companies (Acceptance of Deposits) Amendment Rules, 2016 on June 29, 2016, amending and expanding the list of exempted Deposits.
These rules are summarised below.
Amendment in the existing Rule 2 (1) (c)
Under existing sub-clause (ix), compulsory convertible bonds or debentures
convertible within a period of five years are included in ‘exempt Deposits’. Now, compulsorily convertible bonds or debentures convertible within a period of ten years are included in ‘exempt Deposits’.
Under sub-clause (xi), any non-interest bearing amount received or held in trust. The word ‘or’ has been replaced with ‘and’ to clarify that any non-interest bearing amount held in trust is exempt from the ambit of ‘Deposit’.
Amendment in the existing Rule 3 – specifying limits for acceptance of deposits from members
In sub rule (3), limits for accepting or renewing any deposit from members of a public company has been increased from ‘25%’ of the aggregate of the paid-up share capital and free reserves of the company to
‘35%’.
For private companies, a separate limit has been prescribed for acceptance of deposits from its members.
Private companies may accept from its members, deposits not exceeding 100%
of the aggregate of the paid up share capital, free reserves and securities premium account. For public companies, securities premium account is not available in calculating such limits.
Further, the company has to file details of monies so accepted from members to
the Registrar in the manner as may be prescribed.
Amendment in the existing Rule 4
Advertisement inviting deposits has to be posted on the website of the company.
Advertisement in Form DTP-1 now contains a Disclaimer paragraph.
Amendment in the existing Rule 5
An exemption has been granted from obtaining deposit insurance till March 31, 2017, or till the
availability of a deposit insurance product, whichever is earlier.
The following additional items are included in
‘exempt Deposits’ category under Rule 2 (1) (c)
Sub clause (ixa): Money raised by issue of non- convertible debentures not constituting a charge on the company’s assets, and listed on stock exchange.
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Sub clause (xii): In the course of, or for the purpose of, the business:
(e): Advances received towards consideration for providing future services in the form of a warranty/
maintenance contract as per written agreement/
arrangement, if the period for providing such services does not exceed the period as prevalent in common business practice, or five years from the date of acceptance of service, whichever is less.
(f): Amount received as an advance and as allowed by any sectoral regulator/ in accordance with directions of Government.
(g): Amount received as an advance for subscription towards publication, whether in print or in electronic, to be adjusted against receipt of such publications.
If the above-mentioned amounts become refundable, due to non-availability of necessary permission required or approval required, if any, to deal in goods or provision of
services for which such amount is received, it will be deemed to be a deposit on the expiry of 15 days from the day it becomes due for refund.
Sub clauses (xv) and (xvi): Any amount received by way of subscription under Chit Fund Act or SEBI’s CIS Regulations.
Sub clause (xvii): Amounts of Rs. 25 lacs or more received by a start-up company by way of convertible note (convertible into equity shares or repayable within a period not exceeding 5 years from date of issue) in a single tranche, from a person.
‘Start-up Company’ is defined to mean a private company incorporated under the Companies Act, 2013 or the Companies Act, 1956, and also fulfilling Start-up India Guidelines issued by the DIPP.
‘Convertible note’ has been defined to mean an instrument evidencing receipt of money initially as a debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up company upon occurrence
of specified events, and as per other terms and conditions agreed to and indicated in the instrument.
Sub clause (xviii): Any amount received from SEBI-registered Alternative Investment Funds, Domestic Venture Capitalists and Mutual Funds.
New Rule 16A Disclosure in Notes to the Financial Statement
In case of private companies - money received from the Directors and their relatives.
In case of other companies - money received from the Director.
Let’s talk
For a deeper discussion of how this issue might affect your business, please contact:
Tax & Regulatory Services – Mergers and Acquisitions Gautam Mehra, Mumbai +91-22 6689 1154
[email protected] Hiten Kotak, Mumbai +91-22 6689 1288 [email protected]
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