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The Companies Act 2013

vinodjainca@gmail.com +919811040004

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Overview

Acceptance of Deposits by Companies

Related Party Transaction

Private Placement & Share Application

Loan to Director

Loan & Investment

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DEPOSIT

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Acceptance of Deposits by Companies (Section- 73)

• Companies shall not invite, accept or renew deposits from the public except in the manner provided in this section. (Section 73(1))

• Section not applicable on Banking companies, Non banking financial companyHousing Finance Comnpany Other company as central company may specify.

Private Companies are now prohibited to accept Deposits only from Public- can accept deposit from members

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Conditions for Acceptance of DepositDeposits can be accepted from Members subject to following

conditions:

1. Issuance of Circulars mentioning:

Company’s financial position,

Credit Rating,

Total no. of Depositors,

Amount due towards previous deposits.

2.File a copy of circular within 30 days before the date of issuance of circular.

Continued....

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Conditions for Acceptance of Deposit

3. Deposit with Scheduled Bank in Deposit Repayment Reserve A/C, not less than 15% of deposit maturing in current and next FY. (This account shall be used only for repayment of deposits.)

4. Deposit insurance mandatory.

5. No default in repayment of deposit and interest thereon in the past.

Whether Continuing Default?

6. Deposits to be secured by Property or Assets of the company.

Cont....

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7. Unsecured or partially secured deposits to be disclosed in every circular, advertisement, etc. related to deposits.

8. Deposit to be repaid as per agreed terms and conditions.

9. No Demand Deposits and Rate of interest cap same as NBFC

10.Period of deposit 6 month to 36 month

11.Short term requirement max upto 10% of Paid Up – 3 months

12.Private Company can accept or renew deposits upto 25%

of paid up capital plus reserves

13. Public Eligible company can accept upto 10% from Members and upto 25% of Paid up capital and reserves from Others.

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Conditions for Acceptance of Deposit

• Even Private company to issue circular to all its members and Advertisement in 2 newspapers?

• Eligible Public company to issue circular to all its members and Advertisement in 2 newspapers plus website hoisting

• Mandatory deposit insurance of at least Rs. 20K per depositor

• Creation of full security on tangible assets except for members

• Short term requirement max upto 10% of Paid Up – 3 months

Failure to repay deposit:

Depositor may apply to the Tribunal for repayment of Deposits or for any loss/ damages incurred.

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Repayment Of Existing Deposits sec.74 

• File a statement with Registrar within 3 months from the commencement of all existing deposits.

• Deposit Which were Deposits within the meaning of Deposit before commencement of the new Act.

• Repay within 1 year or balance term as per terms agreed

• Penalty:

Unpaid deposit and thereon, together with :

Company- Fine of not less than 1 crore and not exceeding 10 crores;

Officer in default- Imprisonment extending to 7 years or fine not less than 25 lakhs but not exceeding 2 crores, or both.

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Acceptance of Deposits from Public by certain Companies (Section 76 )

Eligible Companies - Public Companies having: Net worth not less than 100 crores, or Turnover not less than 500 crores.

Credit Rating Mandatory.

Fully Secured.

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Deposits Rules

Deposit Rules does not apply to:BanksNBFCHousing Finance Companies

Deposits defined as per Section 2(31) of the Act: “Deposits” includes any receipt of money by way of deposits 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 RBI. Principle of Ejusdem Generis – Any other form has to be interpreted as in the nature of loans/ deposits.

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Deposits does not include:

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Deposit does not include Continued...

3. Provided amount mentioned in point 2 above i.e subscription money shall be used for:

Allotment within 60 days, or Refund within 15 days from the expiry of 60 days

Adjustments for any other purpose not permitted.

4. Amount received from Directors own sources.

5. Fully Secured Debentures/Bonds by first charge or pari passu charge on the asset of the company not exceeding the market value

Exceptions: Intangible assets Compulsorily convertible bonds / debentures within five years .

Continued…..

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Deposit does not include Continued…

6. Employee security deposit ( maximum salary of 1 year)7. Non interest bearing amount received or held in trust

PANDORA BOX

8. Amount received for the business of the company:

a) Amount received from customers if adjusted within 365 days Exception:

Time limit of 365 days not to be applied on Advance received under litigation.

Amount received not repaid within 15 days from the due date considered deposits.

Continued…..

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Deposit does not include Continued…

b) Advance against Property as per the terms of agreement.c) Security Deposit for goods or servicesd) Advance received under Long term project for supply of Capital

Goods.

For the points a, b and d company should have permission to deal in goods or services or property, otherwise considered as deposits.

9. Unsecured Loans from promoters or their relatives as per the stipulation imposed by Bank/ FI.

10. Nidhi Companies deposit subject to conditions.

Continued…..

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Resolution Required

Eligible Companies- Public Companies having:

Net worth not less than 100 crores, orTurnover not less than 500 crores, andPrior approval by way of Special Resolution in general meeting.Failure to repay can also attract Fraud penalty under sec.447

Exception: Ordinary Resolution in case deposits are within the overall limit of Net Worth Sec 180(1)(c)

Section 73 (2) requires only an Ordinary Resolution

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RELATED PARTY TRANSACTION

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Related Party Transaction (section 188) Related party (definition) [section 2(76)]The following are included:

Director

Relative of director

Key managerial personnel(KMP)

Relative of key managerial personnel

Director or KMP of holding company or their relatives(Rule 3)

Firm, in which a director, manager or his relative is a partner;

Private company in which a director or manager is a member or

director; Continued...

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Continued…

Public company in which a director or manager is a director along with his relatives holds , two per cent or more of its paid-up share capital;

Any person on whose advice, directions or instructions a board of director or MD or manager is accustomed to act, except in professional capacity.

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Contract of employment with Managing or Whole-time directors (Section 190)Exemption to private companies

Every company shall keep at its registered office,—

where a contract of service with a managing or whole-time

director is in writing, a copy of the contract; or

where such a contract is not in writing, a written memorandum

setting out its terms.

The copies shall be open to inspection by any member.

Besides the above changes, penalty for contravention increased

from Rs. 10,000 (under the 1956 Act) to Rs. 25,000.

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Payment of Compensation for loss of office or place of profit (Section 191, Rule 17 of Board Rules)

•To be approved by general meeting with full disclosure

•Contract voidable unless compensation by any other person or transaction is bona fide for value without notice of contravention

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Payment of Compensation for loss of office or place of profit (Section 191, Rule 17 of Board Rules)• Regulate arrangement for acquisition of asset for consideration

other than cash by/ from Company.i. Director of Companyii. Director of Holding or subsidiary or associate.iii.Person connected with such Directors.

Prior approval of shareholders of the company in General meeting

Prior approval of shareholder of Holding Company if Director concerned is Director in Holding Company.

• Notice to include full details prescribed.

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Prohibition on forward dealing Section 194

Whole time Director and KMP prohibited to buy future, forward and option contracts in shares/debentures of

•Company•Holding Company•Subsidiary Company•Associate Company Punishment:

•Imprisonment up to 2 years or •Fine Rs.1 Lakh to Rs. 5 Lakh or Both.

The Company shall not register such securities bought by WTD/KMP and continue in name of Transferee.

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Prohibition on Insider Trading of Securities (Section 195) New provision

Directors or KMP and other person of Company prohibited to the Insider Trading

Exemption: Communication in the ordinary course of business, profession or employment.

“Insider trading” and “Price sensitive Information” defined

Punishment:

Imprisonment up to 5 years or

Fine Rs. 5 lakhs to Rs. 25 crores or 3 times of profit made, whichever is higher or Both.

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PRIVATE PLACEMENT & SHARE

APPLICATION

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Public Offer and Private Placement (Section 23)

•Public offer- Prospectus

•Offer for sale-prospectus

•Private placement

•Right or bonus issue

•Private company cannot make public offer/offer for sale

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Private Placement (Section 42)

Applicable to a public company as well as a private company• Private placement offer letter• Special resolution for each offer or invitation • except in case of NCDs special resolution can be once a year• Maximum offer to 200 persons for each kind of security, equity,

preference shares, debentures • In a financial year , excluding QIB and ESOP These limits do not apply to NBFC/ HFC• Minimum investment of Rs. 20,000 face value

These limits do not apply to NBFC/ HFC

Continued….

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Continued....• Payment from subscribers self bank account only• Cash payment prohibited• No fresh offer, unless allotment of earlier offer completed or

withdrawn or abandoned• Allotment within 60 days from the date of receipt of application

money• Un-allotted money to refund within 15 days from expiry of 60

days• Failure to refund interest to pay at 12 % p.a. from 61st day• Money to be kept in a separate bank account in a scheduled

bank - Used for allotment Used for refund No other usage Continued….

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Continued....

• Private placement to be specific to only intended person by name

• Details of private placement offer to file with registrar within 30 days

• No public advertisement or media, marketing or distribution channel or agent

PENALTY• Non compliance penalty on the :CompanyPromotersDirectorsOf Rs. 2 Cr. Or amount of private placement, whichever is higher

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Further Issue of Capital

Old Section 81, 94D New Section 62 Apply to Public Companies as well as Private Companies Right issue in preparation to existing shares Offer letter to send to all shareholder giving 15 to 30 days notice Non acceptance amount to denial Right to renounce in built in the offer for right share Non-acceptance of right offer- the company can dispose of

shares in any manner not disadvantageous to shareholder or company

ESOP : Special Resolution to authorise

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Loan to Director

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SAVE AS OTHERWISE PROVIDED IN THE ACT No Company shall directly or indirectly,Advance any loan (including loan represented by book debt)Gives any guarantee or provide any security in connection with a

loan to: Any DirectorAny other person in which Director is interested which means

i. Director of lending Company or of a holding companyii. Partner of director iii. Relative of director

Loan to Directors (Section 185)

Continued….

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iv. Firm in which such director is a director or relative is a partner

v. Any private company in which director is a director or a shareholder

vi. Body corporate where 25% or more voting power is held by one or more director

vii.Body corporate, Board of director, managing director, or manager accustomed to act as per instruction of lender or

one or more director

Continued….

Continued….

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Contravention Punishment:

a. Minimum Rs. 5lakh to Rs. 25 lakhs on lending company

b. Director or other person to whom loan advanced/ security provided :

I. Imprisonment upto 6 months or

II. Fine of minimum Rs. 5 lakhs to Rs. 25 lakhs

Continued….

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Loan by Holding company to/ for : Wholly owned subsidiary exempted from section 185

Guarantee/ security to others for loan by other than bank/ FI exempted only for wholly owned subsidiary.

Section 185 do not authorise rule making. This rule is in general powers of exemption under section 462.

Guarantee given or security provided by holding company for : Loan by bank or FI to any subsidiary company exempted

Rule 10 of Board Rules

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Loan &

Investment

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Loan and investment by company (Section 186)

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Continued....

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Continued....

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5. Loan at minimum interest rate equal to yield Government security as per tenor (1/3/5/10 years).

6. Defaulter of Deposit or interest thereon prohibited to give Loan or guarantee.

7. Register of loans, guarantees, Securities.8. Financial statements to contain full particulars

a. Loan given b. Interest madec. Guarantee given d. Security provided

Continued.....

Continued....

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EXCEPTIONS:Section 186 do not apply to Banking CompanyInsurance CompanyHousing finance Company engaged in the Business of financing Company providing infrastructural facilities. NBFC whose principal business is security acquisition Exemption from lending and investment both. Company whose main business is acquisition of securities.Share investment in Right issue of investee company(under section 62(ii) Now all further issue of equity has to be right issue Section 62.

Continued....

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Exemption (Rule 11 Board rules)

Resolution under Section 186(3) not needed if:

•Loan or Guarantee or Security to Wholly Owned Subsidiary or

Joint Venture Company

Joint Venture Company not defined

Gateway to exempted loans to all company whose shares

are owned under a JV agreement

•Investment in Wholly Owned Subsidiary

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Special resolution (Rule 13 Board rules)

Special resolution required under section 186(3)

As per section only word special resolution is specified.As per rule 13(1) prior approval by special resolution prescribed.

Existing loan and investment :

Special resolution to be passed within 1 year from notification of section 186.

Rule 13(2) permits general authority by special resolution to Board to specify upper limit of total amount of loan, investment, guarantee and/or security in relation to Loan.Board approval will still be a must on unanimous

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VINOD KUMAR & ASSOCIATESCHARTERED ACCOUNTANTSvinodjainca@gmail.com +919811040004

NEW DELHI 909 Chiranjiv Tower 43 Nehru PlaceNew Delhi – 110019

4696 Brij Bhawan 21A Ansari RoadDarya Ganj New Delhi - 110002

GURGAON Global Business SquareBuilding No. 32, Sector 44 Institutional Area, Gurgaon,Haryana – 122002

Disclaimer: While every care has been taken to ensure accuracy of this presentation, Vinod Kumar & Associates shall not assume any liability/ responsibility for any errors that might creep in. The material herein does not constitute/ substitute professional advice that may be required before acting on any matter.