Company Deposits- Navigating

through the maze

Vinod KothariVinod Kothari & Company

1006-1009 Krishna224 AJC Bose RoadKolkata – 700017

Phone 033-2281 1276/ 2281 3742/ 2281 7715

403 – 406, Shreyas Chambers 175 D.N. Road, Fort,

Mumbai-400 001Phone: +91 22 2261-4021

A-467, First Floor, Block A, Defence Colony, New Delhi-110024

Phone: 011- 4131 5340

www.vinodkothari.comEmail: corplaw@vinodkothari.com

Prepared for ICSI WIRC – Discussion Series on Company Law29th August, 2020

Copyright

• This presentation is only for academic purposes; this is not intended to be a professional

advice or opinion. Anyone relying on this does so at one’s own discretion. Please do

consult your professional consultant for any matter covered by this presentation.

• No circulation, publication, or unauthorised use of the presentation in any form is allowed,

except with our prior written permission.

• No part of this presentation is intended to be solicitation of professional assignment.

2

About Us

• Vinod Kothari & Company, Company Secretaries inPractice

▫ Based out at Kolkata, Mumbai & Delhi

• We are a team of consultants, advisors & qualifiedprofessionals having over 30 years of experience

3

Our Organization’s Credo:

Focus on capabilities; opportunities follow

Session Coverage Deposit as an instrument of working capital funding – does it still have relevance for non-financial entities?

Deposit as an instrument of funding for financial entities

Concept of deposit as a money-for-money transaction; wide sweep of the term deposit

What all are not deposits?

Amounts received in trust – meaning, implications of AIF, PMS or CIS

Advances against goods and services

Instalment schemes for purchase of goods/services

Inter-corporate deposits

Scheduled repayment of deposits, extension and implications of non repayment; penal provisions

Acceptance of deposits by non-banking financial companies

Return on exempted deposits

Banning of Unregulated Deposit Schemes Act, 2019 (BUDS Act, 2019)

Deposits by NBFCs

4

5

Relevance for non-financial entities

• Deposits was a temporary facility allowed long time back to cotton mills inBombay region, as they faced a working capital crisis.

• The phenomenon of non-financial entities accessing deposits from the publicis rare in the world

• In India, during the 1970s and 1980s, deposits were accepted by non-financial entities on a large scale

• With the increasing efficiency of banks, emergence of bonds markets andinstitutional investors, deposits have lost relevance

• On the contrary, the downsides, with spectre of poor people getting lured byhigher rates of interest, and eventually losing their life savings, is far higherthan the benefits of deposits

6

Relevance of deposits for financial entities

• Most NBFCs are non-depository; they are not allowed to accessdeposits at all

• Over last several years, RBI has not granted any deposit license

• Hence, the relevance of deposits for NBFCs may be not from theviewpoint of deposits per se, but for understanding other fund-raising instruments that may amount to deposits

7

Deposit as an instrument of funding for financial entities

1. Secured Bonds/ Debentures

2. CCBs/CCDs

3. NCDs having minimum subscription of Rs. 1 crore

4. Unsecured NCDs listed on a recognised stock exchange

5. Hybrid Debt Instruments

6. Subordinated Debt Instruments

7. Commercial Paper and Infrastructure Bonds

8. Perpetual Debt Instruments

8

Instruments for funding financial entities and not treated as deposits

Deposits in case of non-corporate entities

• Presently the only regulation in case of non-corporate entities issec. 45 S of the RBI Act

▫ Unincorporated entities not to accept deposits

• For certain Deposit takers- Banning of Unregulated DepositScheme Act, 2019

▫ This will prohibit deposit-taking by all unincorporated entities

▫ Including LLPs

9

Meaning of deposits under CA, 13

10

Inclusive definition• “Deposit” includes-

▫ any receipt of money

▫ by way of deposit or loan or in any other form, by a company

• It will include-

▫ Deposit in substance

▫ Amount received from LLP

▫ Installment schemes- Deemed Deposit

If a scheme promises returns, in cash or in kind, at the end of the specified period, the scheme will still be treated as a

“deposit”

▫ Explanation to Rule 1(c) of Companies (Acceptance of Deposit) Rules, 2014-

▫ Any money received by the company, whether in the form of instalments or otherwise, from a person with promise or

offer to give returns, in cash or in kind, on completion of the period specified in the promise or offer, or earlier,

accounted for in any manner whatsoever, or

any additional contributions, over and above the amount under aforesaid, made by the company as part of such

promise or offer

11

What is not a deposit? – 1/2

• Receipt of anything other than money

• Loans from Banks, Financial Institutions and Mutual

Funds

• Money received from Company

• Amount raised through issue of NCDs

▫ Not constituting charge on assets

▫ Listed

• Amount raised through issue of CCDs

▫ Provided it is mandatorily converted in shares in 10 years

• Amount issued as Secured debentures

▫ Provided it is 100% secured

• Amount received towards subscription of any securities

▫ Allotment to be made within 60 days from the date of receipt of

money or advance.

▫ Amount not refunded within 15 days from completion of 60 days

will be treated as deposits. Any adjustment will not be treated as

refund.

12

• Amount received in trust

• Provided no interest is paid

• Amount raised by issuance of units

• Advance received for supply of goods/ services

• Appropriated within 365 days

• CLC recommendation to omit this subject to a

written contract and disclosure in financial

statements

• Deposit from directors

• relative of director in case of private company also

included

• Declaration at the time of giving money that money

is not from borrowed funds and disclosure in

Board’s Report

• Amount received from employee (non-int

bearing)

• Not exceeding his annual salary

What is not a deposit? – 2/2

• Amount received from shareholders in case of private company – conditional exemption by MCA notification

• Commercial paper

• Any other instruments issued as RBI guidelines/ notification

▫ Short term NCDs issued with 12 months maturity and by private placement will get exempted.

• Share warrants

▫ Exempt from deposits but covered u/s 62 (1) (c)

• Promoter’s unsecured funding

▫ On stipulation imposed by lending institution

▫ Provided by themselves or by their relatives or both

▫ Exemption available only till loan of financial institution or bank are repaid

• Any other transaction not amounting to deposit in substance

• Advance towards consideration for providing future services in form of a warranty or maintenance contract

▫ Period not exceeding common business practice or 5 years from date of acceptance;

▫ Whichever is less

• Collective Investment Scheme – not a deposit

• Advance received and allowed by any sectoral regulator

• Security Deposit

• Advance received in connection with consideration for an immovable property

• Deposit from foreign corporate, citizens.

• Accepted by Nidhi companies subject to conditions

13

Money held in trust-meaning and

implication of CIS, AIF, PMS, etc.

14

Meaning

• The beneficiary is different from the person holding the money

• Deposit Rules provides three categories-

▫ any amount received and held in trust by a company

should be non- interest bearing

▫ Amount received under CIS

▫ Amount received from AIF, VCFs, MFs

• Under CIS, AIF, MFs, -

• money is pooled in from the various investors

• specialised portfolios are created for investing the funds

• during the tenure of holding the investment, it is held in trust and

• benefit is routed back to the original investor

15

Collective Investment Scheme (CIS)

• CIS involves pooling of money from various investors (unitholders) and making managed investment by portfolio managersin different assets to provide decent returns.

16

Investment Pooled in CIS

Investor 1 Investor 2 Investor 3 Investor4

Portfolio Investment

Mutual Funds (MFs)

• MFs pool the money of several investors and invests this in stocks,bonds, money market instruments and other types of securities.

17

Portfolio Management Schemes (PMS)

• PMS is a tailor made professional service offered to cater theinvestments objective of different investor classes such asindividuals or institutions entities with high net worth.

18

Alternate Investment Funds (AIFs)

• AIFs are any fund established or incorporated in India in the form of a trustor a company or a limited liability partnership or a body corporate which,-

19

(i) privately pools investment from investors in accordance with a defined investment policy for the benefit of its investors;

(ii) is not covered under any other regulations of the Board to regulate fund management activities

Advance for supply of Goods/

services- whether deposit?

20

Advance for supply of Goods/ services

• Advance for supply for goods is under exclusion list

• However, will be treated as deposit-

▫ If not appropriated towards supply of goods/ services

within 365 days from date of acceptance of advance

will be deemed as deposit, within 15 days from the date of expiry of 365 days

▫ If agreement is not duly registered In case of advance received for sale of immovable property

• Meaning of appropriation

▫ Does it have to do with the actual supply of goods or services, or the identification of theamount with a specific contract for supply of goods or services?

Evidently, MCA cannot regulate commercial contracts for supply of goods or services

21

Prohibitions, allowances & requirements

22

Prohibition on acceptance of deposits from public (Sec 73)

• Sub sec (1) and (2) read together give an impression that this section relates to acceptance of deposits from

members only

• For acceptance of deposits from members, following have been prescribed:

▫ Circular to be issued to members incl. financial positions, credit rating etc.

File DPT-1 with RoC within 30 days before the issue of the Circular

▫ Maintenance of deposit repayment reserve account

Deposit on or before 30th April each yr - atleast 20% of amount of deposits maturing during the following FY

▫ Certification by statutory auditors that no default has been committed in repayment of deposits accepted

before

Payment of interest on such deposits where default occurred made good;

5 years had lapsed since the date of making default good

▫ Providing security including creation of charge on property or assets of company for repayment of deposits

or interest

If unsecured or non secured, termed as “ unsecured deposits” and disclosed in every circular/ adv inviting deposit

• Section 73 states that sub-section (1) shall not be applicable to:

▫ Banking company

▫ NBFC as defined in RBI Act, 1934

Section 73(2) carries no such exemption

23

Public deposits only by eligible companies (Sec. 76)

Eligible Companies

Public Companies

Net worth of not less than Rs. 100 crore

Turnover of not less than Rs. 500 crore

Has taken prior approval by SR passed in general meeting

and filed such resolution

24

AndOr

• Other requirements have to be complied:

• credit rating (every year), deposit in deposit repayment reserve account etc.

• creation of security including creation of charge within 30 days of acceptance of deposits

• Filing of circular for advertisement in e-Form DPT-1

Repayment of deposits accepted before the Act,

2013• Section 74 requires such companies to;▫ File with Registrar a statement of all the deposits accepted by the Company and sums

remaining unpaid on such deposits, including interest payable in DPT - 4. Within 3 months from commencement of Act or due date.

▫ Repay such amounts Within 3 years of commencement or due date, whichever earlier

• Company may approach Tribunal to allow further time• In case of failure to repay within time stated above or that allowed by tribunal, Section

74(3) imposes enormous penalty:▫ On the company

Fine of not less than Rs. 1 crore (CLC recommends 1 crore or twice the amount, lower) and not more than Rs. 10 crore and

▫ On every officer of the company who is in default imprisonment which may extend to 7 years or with fine of not be less than Rs Rs. 25 lakh but which may extend to Rs. 2 crore, or with both

25

Deposit Rules, 2014

26

Restrictions- Rule 3

Rule 3 lays down certain restrictions on acceptance of deposits bycompanies.▫ Companies shall not accept / renew deposits repayable on demand or upon

receiving a notice within a period of less than 6 months or more than 36months from the date of acceptance / renewal.

▫ The company may accept / renew deposits for less than 6 months, if Such deposits do not exceed 10% of aggregate share capital, free reserves and

securities premium account

Minimum tenure of be 3 months.

▫ In case of joint shareholding, maximum number of shareholders shall notexceed 3.

27

• A Company shall not accept or renew any deposit from members if the amount of such deposittogether with all other outstanding deposits exceeds 35% of paid-up share capital + freereserves+ securities premium account.

• No Eligible company shall accept / renew:

▫ Deposits from members- if such deposits + all other outstanding deposits from membersexceeds 10% of paid-up share capital + free reserves + securities premium account.

▫ Any other deposit- if the amount of such deposit (except deposit from members) + all otheroutstanding deposits exceeds 25% of paid-up share capital + free reserves + securitiespremium account.

• In case of eligible company being a Government Company, shall not accept or renew deposits ifsuch deposits + all other outstanding deposits exceeds 35% of paid-up share capital + free reserves +securities premium account.

• Eligible co. to obtain credit rating:

▫ Atleast once a year on deposits accepted and a copy of the rating to be filed in DPT-3

▫ Credit rating shall not be below the min. investment grade rating or other specified rating for fixed deposits,from alteast one approved credit rating agency as specified in NBFC Deposit Directions for NBFCs

Limit on Acceptance of Deposits- Rule 3 (3, 4 & 5) (1/2)

28

• Specified IFSC public company (unlisted public co. given license tooperate by RBI/SEBI/IRDAI in Special Economic zone) + privatecompany

• Accept deposits from members▫ Deposit not exceeding 100% of paid up share capital + free reserves +

securities premium account▫ File such deposit in DPT-3

• Relaxation from the max. limit of 10% in the following cases:• Start-up pvt. cos – For 5 years from incorporation• Other private cos upon fulfilment of following conditions:• Not an associate or subsidiary of any other co

• Borrowings from banks/ FIs/ body corporate- less than twice of PUSC or 50Cr, lower

• No default in repayment of subsisting borrowings

• Filing in DPT-3 by all cos.

Limit on Acceptance of Deposits- Rule 3 (3, 4 & 5) (2/2)

29

Rate of Interest or brokerage- Rule 3(6)

• The rate of interest paid on deposits shall not exceed the maximumrate prescribed by RBI for acceptance of deposits by NBFCs.

• Similar is provision for payment of brokerages. Provided that onlypersons authorized by companies to solicit deposits on its behalfshall be entitled to brokerages.

30

Circular or circular by way of advertisement– Rule 4

• To circulate to members in DPT-1 and published in 2 newspapers• To be posted on website• Circular to be in the name of the BoD of the co.• Signed circular to be delivered to ROC atleast 30 days before the dt. of

issue• A circular or circular in the form of advertisement issued in accordance

with section 73(2) or section 76 shall be valid until▫ Expiry of 6 months from closure of financial year in which issued

or▫ Date on which financial statements laid before company in general meeting

or▫ Latest day on which the meeting should have been held as per the Act

whichever is earlier.• Subsequently, fresh circular in each succeeding FY for inviting deposits

during that FY.

31

Creation of Security- Rule 6

• Company u/s 73(2) and every eligible company inviting secured deposits shall

provide for security , atleast for an amount remaining unsecured by the deposit

insurance provided.

▫ By way of charge on assets referred to in balance sheet, excluding intangible assets.

▫ The amount of such deposits and interest payable thereon, shall not exceed the

market value of such assets as assessed by a registered valuer.

• The amount of deposits accepted and the interest payable thereon shall be

secured either by way of deposit insurance and/or by way of charge on assets.

• Security to be created in favor of a deposit trustee on a specific moveable

property or immoveable property of the Company.

32

Appointment of Deposit Trustees- Rule 7

• Company needs to appoint deposit trustees before inviting secured deposits.▫ Written consent to be obtained from trustees

▫ Deposit trust deed in DPT-2 to be executed atleast 7 days before issuingcircular/advertisement.

• A person, including a company providing trusteeship services, cannot beappointed as trustee if such person▫ Is a director, KMP, officer or employee of the company, or of its holding, subsidiary

or associate company or a depositor in the company or is related to any such person ;

▫ Is indebted to the company, or its subsidiary, holding or associate company or asubsidiary of such holding company.

▫ Has any material pecuniary relation with the company;

▫ Has entered into any guarantee arrangement in respect of principal debts secured bythe deposits or interests thereon.

33

Creation of Deposit Repayment Reserve-

Rule 13

• Applicable to every Company raising member deposits & eligible companies.

• Company to park, on or before 30th day of April each year, a sum of at least 20% of the

amount of deposits, whether secured or unsecured, maturing during the following

financial year

▫ in deposit repayment reserve account with any scheduled bank, free from charge or lien;

▫ Was to be complied till 30th June, 2020 for the FY 2020-21 as special measure in view of COVID-19

outbreak

• The money so parked can be utilized only for the purpose of repayment of deposits

• The amount remaining deposited shall not at any time fall below 20% of the amount of

deposits maturing until current and next financial year.

Link: http://www.mca.gov.in/Ministry/pdf/Circular_25032020.pdf

34

Premature repayment of deposits –

Rule 15

• In case of repayment of deposit, on the request of depositor, after aperiod of 6 months from date of deposit but before expiry of depositperiod

▫ Rate of interest paid will be

rate which the company would have paid had the deposit been acceptedfor the period for which such deposit had actually run - 1%

the company shall not pay interest at any rate higher than the rate soreduced.

35

Provisions applicable based on outstanding loans/

borrowings/ deposits

• Provisions applicable only to Public companies

▫ 25 crore or more at any point of time during the last FY

Appointment of internal auditor to conduct internal audit.

▫ Exceeding 50 crore

Atleast one-third of the Total number of its Directors shall be IndependentDirectors.

The criteria specified above shall be applicable for the first year and shall continue toapply to that company in subsequent years during the tenure of the IndependentDirector even borrowings/deposits fall below the limits specified therein.

Constitution of Audit Committee and Nomination and Remuneration Committee

• Provisions applicable to both Public and Private companies

▫ Any amount of deposit

Company to establish vigil mechanism for their directors and employees to reportgenuine concerns.

36

Failure of scheduled repayment of deposits sec 73(4)

• Depositors to do-

37

To approach

DepositorFor

directing order

NCLT

• Sum due ;• Loss or

damage incurred

To pay

Penal provisions for fraud- Sec 75

• Penal provisions for fraud-

38

Liability under section 447

Defrauding proved

Company fails to repay

• Officer shall also be personally responsible with unlimited liability for all damages or loss incurred by depositors

Deposit Rules,1975 v/s the Companies (Acceptance of

Deposits) Rules, 2014Companies Act, 2013 Companies Act, 1956 Remarks

Companies (Acceptance of Deposits)

Rules, 2013

Companies (Acceptance of Deposits) Rules,

1975

Inapplicability

(i) a banking company and

(ii) a non-banking financial company (as

defined in the Reserve Bank of India Act,

1934) registered with the Reserve Bank of

India

(iii) a housing finance company registered

with the National

Housing Bank established under the National

Housing Bank Act,

1987 (53 of 1987)

(iv) a company specified by the Central

Government under the

proviso to sub-section (1) of section 73 of the

Act.

Banking companies and financial companies

Financial companies means a non-banking

company which is a financial institution within the

meaning of clause (c) of section 45-I of the Reserve

Bank of India Act, 1934 (2 of 1934).

The current deposit directions

exclude only NBFC registered with

RBI. Thus, the deposit directions

shall be applicable to CICs HFCs,

which are not registered with RBI.

39

Changes in Deposit Rules

• MCA notified the Companies (Acceptance of Deposits) Amendment Rules, 2019

• Effective date: Jan 22, 2019 (same day of the Notification)

• Applicability: all cos- both public and private except govt. cos

40

Deposit (Amendment) Rules, 2019• Applicability

all companies – both public as well as pvt (except govt cos)

• Purpose of e-form DPT-3▫Return of Deposit: or▫Particulars of transaction not considered as deposit: or▫Both

• Periodicity of filing▫One time Return

o Details: outstanding receipt of money or loan which have not been considered as deposits under the Rules;o Period of receipt of money or loan: from 01.04 2014 till 31.03.2019 and which are outstanding as on the said

date;o Reporting: within 90 days from the day the form is available for filing

▫Yearly Returno Details: Particulars of transactions which are not considered as deposits under the Rules;o Reporting: within 30th June of every year containing details as on 31st March.

• Filing Fees: Fees shall be payable as per the Companies (Registration Offices and Fees) Rules,2014 which is as per the range of capital- Rs. 200- 600

41

Filing requirement of DPT-3

42

One time return

Details: outstanding receipt of money or loan

which have not been considered as deposits

under the Rules;

Period of reporting of aforesaid transactions

shall be from 01.04 2014 till 31.03.2019 which are

outstanding as on the said date

One time filing- within 90 days from the date of availability of form.

Yearly return

File return of deposit accepted by the Company

based on the audited financials of the Company

as on 31st March

Particulars of transactions which are not considered

as deposits under the Rules

To be filed within 30th June of every year

• Companies may avail benefit of CFSS, 2020 and file till Sept, 30, 2020

e-Form DPT-3Last updated ver. 19 May, 2019

43

44

45

46

Consequences of non-reporting in e-form DPT

3 - Section 76A and Rule 21

• On the Co.

Fine of min 1 Crore Rs. or twice the amount of deposit whichever is lower,

Fine may extend to 10 Crore Rs.

• For Officers in default

Imprisonment upto 7 years and

Fine of 25 Lakhs– 2 Crore Rs.

• If proven fraud

Liable for action under section 447

47

Banning of Unregulated Deposit Schemes

Act, 2019

48

Almanac of events

49

Introduced in Lok Sabah

July 18, 2018

Referred to Standing

Committee

Aug, 10, 2018

Standing Committee Report

Jan 3, 2019

Passed in Lok Sabha Feb 13, 2019

President promulgated the

Ordinance on Feb 21, 2019

Enacted as an Act on July 31, 2019

w.e.f. Feb 21, 2019

Rules enacted on Feb 12, 2020

Quick snapshot

• Ordinance came on Feb 21, 2019 and is seemingly important

• The Act came on July 31, 2019 w.e.f. Feb 21, 2019

• Rules were enacted on Feb 12, 2020;

• Scope – all kinds of deposit takers are covered;

• Immediate repercussion – anything which falls under thedefinition of deposit and not regulated – is banned withimmediate effect;

• The bar is not only on solicitation but also on acceptance;

• Isolated transaction is also scheme / arrangement

50

Meaning of Deposit

• An amount of money received▫ by way of an advance or loan or in any other form,▫ not in kind

• By any deposit taker▫ Means an individual, group of individuals, proprietorship concern, partnership

firm, LLP, Company, AOP, Trust (private or public), co-operative society or anyother arrangement.

▫ Does not include a Corporation incorporated under Act of Parliament or StateLegislature, Banking company, SBI, RRBs, Co-operative bank or a Multi-state co-operative bank as defined in Banking Regulation Act, 1949.

• With a promise to return▫ whether after a specified period or otherwise,▫ either in cash or in kind or▫ in the form of a specified service,

• with or without any benefit in the form of interest, bonus, profit or inany other form.

51

Exclusions from the meaning of Deposit

(1/2)• Loans received from Banks;

• Loans/ financial assistance from PFIs or any registered NBFCs,Regional Financial Institutions and Insurance companies;

• Amount received from or guaranteed by appropriate Government;

• Amount received from a statutory authority;

• Amounts received from foreign government, foreign banks,foreign authorities etc or person resident outside India as perprovisions of FEMA Act, 1999;

• Capital contributions by partners of partnership firm or LLP;

• Loans received by an individual from his relatives;

• Loans received by a firm from relatives of partners;

52

Contd.

• Any credit given by a seller to a buyer on the sale of any property (whether movable orimmovable);

• Amounts received by a registered ARC;• Amounts received under Section 34 or Section 29B of the Representation of the People

Act, 1951;• any periodic payment made by the members of the self-help groups as per the ceiling

prescribed by State/ Union Territory Government;• Amount received in the course of, or for the purpose of, business and bearing a

genuine connection to such business for following and which has not becomerefundable (including for reasons where deposit taker did not obtain necessarypermission or approval under the law for the time being in force, wherever required, todeal in the goods or properties or services for which money is taken):▫ Payment, advance or part payment for supply/ hire of goods / services;▫ Advance received in connection with and adjusted towards consideration of an

immoveable property under an agreement or arrangement;▫ Security deposit;▫ Advance under long-term projects for supply of capital goods;

53

Exclusions from the meaning of Deposit

(2/2)

Applicability in case of Companies & NBFCs

• For companies: the meaning of ‘deposit’ shall be as perdefined in Companies Act, 2013;

• For registered NBFCs: definition of ‘deposit’ shall be asgiven in Section 45-I (bb) of Reserve Bank of India Act,1934.

54

What about the following?

• Loan given by co. to LLP?

• Loan given by Non Banking Non Financial Co. to:

Any individual?

Its director?

• Loan given by partner to partnership firm?

• Inter-state deposit?

55

Sec 3

• From Feb 21, 2019-

• Unregulated deposit scheme are banned; and

• No deposit taker shall:

directly or indirectly

promote,

operate,

issue any advertisement soliciting participation or

enrolment in or

accept deposits in pursuance of an Unregulated Deposit Scheme.

56

Sec 4, 5, 6

Regulated Deposit Scheme Unregulated Deposit Scheme

• No deposit taker, under such scheme,should commit any fraudulent default –

• (a)in the repayment or return of deposit onmaturity;

• (b) in rendering any specified servicepromised against such deposit.

• No person should knowingly make anymisleading statement, or promise orforecast which is false or deceptive;

• Deemed to be Unregulated DepositScheme:

• (a)Prize chit money;

• (b) money circulation scheme bannedunder Money Circulation Scheme(Banning) Act, 1978.

57

Offences (1/2)

• Soliciting deposits under Unregulated Deposit Schemes Imprisonment: 1 year to 5 years; and Fine: INR 2 lakhs to 10 lakhs

• Acceptance of deposits under Unregulated Deposit Schemes Imprisonment: 2 years to 7 years; and Fine: INR 3 lakhs to 10 lakhs

• Acceptance of deposits under Unregulated Deposit Schemes an Fraudulent default Imprisonment: 3 years to 10 years; and Fine: INR 5 lakhs to twice the amount of aggregate funds collected.

• Fraudulent default in Regulated Deposit Schemes. Imprisonment: upto 7 years; and Fine: INR 5 lakhs to 25 crores or three times the amount of profit made out of fraudulent default. The provisions are different from that provided under Section 76A of Companies Act, 2013.

58

• Wrongful inducement in relation to Unregulated Deposit Schemes Imprisonment: 1 year to 5 years; and Fine: upto INR 10 lakhs

• Repeated offenders Imprisonment: 5 year to 10 years; and Fine: INR 10 lakhs to 50 crores

• Failure to file intimation by deposit taker about its business, to the authority Fine upto 5 lakhs. Where the authority has reasons to believe that deposits are being accepted or

solicited under Unregulated Deposits Scheme, it may ask for further information. This information pertains to details of amounts falling within the meaning of

deposits as defined in the Act. Further, companies accepting deposits under Chapter V of Companies Act, 2013 are

also required to provide the information.

59

Offences (2/2)

Deposits by NBFCs

60

Definition of deposit and public deposit

• Deposit as per section 45-I(bb) of the RBI Act, 1934▫ Any amount of money excluding the following–

raised by way of share capital; contributed as capital by partners of the firm received from a scheduled bank or a co-operative bank or any other banking

company defined under Banking Regulations, 1949 received from SFC or any other financial institution under IDBI or any other

prescribed institution received in the ordinary course of business as

security deposit, dealership deposit, earnest money, advance against orders for goods received from form or an AOP not being a body corporate and registered under

enactment related to money lending received by way of subscriptions in respect of a chit.

• Public deposit – Deposit as per the RBI Act, 1934 except certain items mentioned inthe next slide

61

Exceptions to Public Deposit under RBI Directions(1/4)

62

amount received from CG, SG, local authority, foreign government or citizen

any amount received from IDBI or LIC or GIC and its subsidiaries SIDBI or UTI or NABARD or Electricity Board and such Government companies that are notified by RBI.

any amount received as hybrid debt or subordinated debt :-

- Minimum maturity period is not less than 60 months

- Provided there is no option for recall by the issuer within the period;

Exceptions to Public Deposit under RBI Directions(2/4)

any amount received by a company from another company

any amount raised by issuance of NCD in accordance with RBI guidelines:-

- Maturity period should be more than one year

- Minimum subscription per investor is Rs.1 crore and above

unsecured loan brought in by the promoters subject to the following:-

- loan brought in pursuance of the stipulation imposed by the lending PFI in fulfilment of the obligation of the promoters to contribute such finance,

- loan is provided by the promoters themselves and/or by their relatives, and not from their friends and business associates, and

- exemption under this sub-clause shall be available only till the loan of financial institution is repaid and not thereafter;

63

Exceptions to Public Deposit under RBI Directions (3/4)

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any amount raised by the issue of bonds or debentures secured by the mortgage of any immovable property of the company or any other asset-

- the amount of such bonds or debentures shall not exceed the market value of such immovable property/other assets

any amount received by a NBFC-SI-ND by issuance of 'perpetual debt instruments' in accordance with RBI Guidelines.

any amount raised by the issue of infrastructure bonds by an IFC as specified by CG u/s 80CCF of the IT Act.

Exceptions to Public Deposit under RBI Directions (4/4)

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amount received and held in accordance with the provisions of the CA, 2013 towards subscription of securities, including share application money

- pending allotment for not more than 60 days

amount received from a director of a company or a shareholder of a private company or by a private company

- provided amount should not be borrowed funds and a declaration to that effect is to be given

any amount received by MFs regulated by SEBI and issuance of commercial paper in accordance with guidelines.

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