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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 company
Housing 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 Deposit
Deposits 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?
3. 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:
Banks
NBFC
Housing 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 services
d) 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, or
Turnover not less than 500 crores, and
Prior 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 Company
ii. 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 :
Company
Promoters
Directors
Of 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 Director
Any other person in which Director is interested which means
i. Director of lending Company or of a holding company
ii. 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 made
c. Guarantee given
d. Security provided
Continued.....
Continued....

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EXCEPTIONS:
Section 186 do not apply to
•Banking Company
•Insurance Company
•Housing 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 & ASSOCIATES
CHARTERED ACCOUNTANTS
vinodjainca@gmail.com
+919811040004
NEW DELHI
909 Chiranjiv Tower
43 Nehru Place
New Delhi – 110019
4696 Brij Bhawan 21A Ansari Road
Darya Ganj New Delhi - 110002
GURGAON
Global Business Square
Building No. 32, Sector 44
Institutional Area, Gurgaon,
Haryana – 122002
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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.