THE COMPANIES (ACCEPTANCE OF DEPOSITS) RULES, 2014 AMENDED BY MCA

The Ministry of Corporate Affairs vide notification dated 29th of June, 2016 released the Companies (Acceptance of Deposits) Amendment Rules, 2016. (Deposit Amendment Rules)

We have presented below summary of the changes made to the Companies (Acceptance of Deposits) Rules, 2014 by the aforesaid Deposit Amendment Rules.

Companies (Acceptance of Deposits) Rules, 2014

Companies(Acceptance of Deposits) Amendment Rules, 2016

Expected Impact

RULE 2 :

Sub-Rule (1),clause (c) , sub clause (ix)

Sub clause (ixa)

Sub clause (xi)

Sub clause(xii)

After sub clause (xiv)

Deletion of old explanation

The term five years has been changed to ten years.

Insertion of new clause

The term “or” has been omitted “and” has been introduced

Inclusion of 3 new clauses- (e) ,(f), (g)

Insertion of additional clauses (xv),(xvi),(xvii), (xviii) clarifying more items which are excluded from qualifying as “Deposit”

New Explanation

. Longer conversion period of 10 years for Debentures or Bonds would assist companies in structuring of debt financing without being trapped into cumbersome Deposit norms and is a welcome move

Deposit will exclude:

. Any amount raised by issue of unsecured non-convertible debentures listed on a recognized stock exchange as per SEBI regulations

. Any non-interest bearing amount received and held in trust in course of or for purpose of business of the company:

. Any amount received as advance in the providing future services of the nature warranty or maintenance contracts.

. Any amount received and allowed by any sectoral regulator or in accordance with directions of Central or State Government

. Any amount for subscription towards publication in print or electronic media to be adjusted against receipt of such publications.

.Deposit would also exclude subscription amount received in respect of chit under the Chit Fund Act, 1982, or under collective investment scheme under the SEBI Regulations.

. An amount of Rs 25 lakhs or more received by a startup company by way of convertible note.

. Further, Deposit would exclude any amount received by a company from Alternative Investment Fund, Domestic Venture Capital Fund or Mutual Funds registered with the SEBI in accordance to its norms.

 

RULE 3 :

In sub-rule (3)

Sub rule (8)

 

The words twenty -five percent, the words thirty – five percent shall be substituted.

Now Sub-rule (8) becomes sub-rule 8(a) and addition of sub – rule 8(b)

 

. All Companies [refer to section 73(2)] allowed to accept or renew deposits from its members, not exceeding 35% of the aggregate of the paid-up share capital, free reserves and securities premium account. Earlier this limit was 25%.

. Private company are now allowed to accept from its members monies not exceeding 100% of aggregate of the paid up share capital, free reserves and securities premium account.

. Credit rating for deposits shall not be below the minimum investment grade rating or any other specified credit rating ) for fixed deposits from approved credit rating agencies as specified for NBFCs under the RBI NBFC norms.

 

Rule 4 :

Sub-rule (2)

 

Addition of words “and shall also place such circular on the website of the company, if any.”

. Publication of circular on the website of the company (if any) is now mandatory in addition to newspaper publication.

 

Rule 5 :

Sub-rule(1)

 

31st March 2016 replaced with 31st March 2017

. Increases the timeline for deposit insurance by 1 year, given the shortage of such products with Insurance Companies.

 

Rule 16 :

Insertion of Rule 16A

Disclosures in the financial statement

. Talks about essentials disclosures in the financial statement:

. Every company (other than private company) has to disclose in its financial statement by way of notes about money received from directors.

. Every Private company has to disclose in its financial statement by way of notes about money received from directors and relatives.

 

Form DPT-1

 

Insertion of Para-7: Disclaimer

. Filing of circular or circular in form of advertisement may not be understood as having been cleared or approved by the Central Government.

. Exercising of due diligence by depositor.

The disclaimer aims to caution the Investor of the risk associated with investing in Deposits.

RULE 2 :

a. Sub-Rule (1), clause (c) sub clause (ix) now reads as any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within10 years.

b. Sub-Rule (1),clause (c) sub clause (ixa) has been added -” any amount raised by issue of nonconvertible debenture not constituting a charge on the assets of the company and listed on a recognized stock exchange as per applicable regulations made by Securities and Exchange Board of India”

c. Sub-Rule (1), clause(c) sub clause (xi) has a clarifying stance-“any non-interest bearing amount received and held in trust”. The word ‘and’ replaces the word ‘or

d. In sub clause (xii) after item (d) and before proviso these items have been inserted:

(e) as an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement, 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;

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

(g) As an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications;”

e. After sub clause (xiv) 3 new sub clauses have been added:

(xv) Any amount received by way of subscription in respect of a chit under the Chit Fund Act, 1982 (40 of 1982)

(xvi) Any amount received by the company under any collective investment scheme in compliance with regulations framed by the Securities and Exchange Board of India

(xvii) 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 five years from the date of issue) in a single tranche, from a person.

There is a new Explanation which replaces the old one:

1. “start-up company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognized as such in accordance with notification number C.S.R. 180(E) dated 17t’h February, 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and industry.

2. “Convertible note” means 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 the other terms and conditions agreed to and indicated in the instrument.

(xviii) Any amount received by a company from Alternate Investment Funds, Domestic Venture Capital Funds and Mutual Funds registered with the Securities and Exchange Board of India in accordance with regulations made by it.”

RULE 3:

a. Sub-rule (3) (a) now reads as “No company referred to in sub-section (2) of section 73 shall accept or renew any deposit from its members, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds thirty five per cent. of the aggregate of the paid-up share capital and free reserves of the company”

b. Inserting Sub-rule 3(b), “Provided that a private company may accept from its members monies not exceeding one hundred per cent of aggregate of the paid up share capital, free reserves and securities premium account and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.”

c. For sub-rule (8), the following sub-rule shall be substituted, namely:

“(8).- (a) Every eligible company shall obtain at least once in a year, credit rating for deposits accepted by it and a copy of the rating shall be sent to the Registrar of Companies along with the return of deposits in Form DpT-3

(b) The credit rating referred to in clause (a) shall not be below the minimum investment grade rating or other specified credit rating for fixed deposits, from any one of the approved credit rating agencies as specified for Non-Banking Financial Companies in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998, issued by the Reserve Bank of India, as amended from time to time.”

RULE 4 :

a. Sub-rule(2) , the following sub-rule shall be substituted, namely:- ” Every eligible company intending to invite deposits shall issue a circular in the form of an advertisement in form DPT-1 for the purpose in English language in an English newspaper having country wide circulation and in vernacular language in a vernacular newspaper having wide circulation in the State in which the registered office of the company is situated, and shall also place such circular on the website of the company, if any.”

RULE 5 :

a. for the proviso, the following proviso shall be substituted, namely:- “Provided, that the companies may contract till the 31s March, 2017 or product, whichever is earlier accept deposits without deposit insurance till the availability of a deposit insurance”

RULE 16 :

Insertion of RULE 16A:

“16A. Disclosures in the financial statement. – (1) every company, other than a private company, shall disclose in its financial statement, by way of notes, about the money received from the director. (2) Every private company shall disclose in its financial statement, by way of notes, about the money received from the directors, or relatives of directors.”

FORM DPT-1 :

In form DPT-1 (Annexes), the following para shall be inserted, namely:-

“6. DISCLAIMER. – It is to be distinctly understood that filing of circular or circular in the Form of advertisement with the Registrar should not in any way be deemed or construed that the same has been cleared or approved by the Registrar or Central Government. The Registrar or Central Government does not take any responsibility either for the financial soundness of any deposit scheme for which the deposit is being accepted or invited or for the correctness of the statements made or opinions expressed in the circular or circular in the Form of advertisement. The depositors should exercise due diligence before investing in the deposits schemes.”

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