Steps to be followed for taking Loan from Members by Private Companies

Steps to be followed for taking Loan from Members by Private Companies

 to Exemption Notification under the Companies Act, 2013

 

 

 

Applicability:

Applicable in case of loans from members by private limited companies with effect from 5th June,

2015. The procedure contained in this document only pertains to unsecured deposits proposed to be

accepted by a private limited company from its members.

Impact of the Exemption Notification:

Relaxation in conditions for Acceptance of Deposits from Members

Relaxation Impact

Provisions of Sec 73(2) (a)

to (e) shall not apply to a

private company which

accepts from its members

monies not exceeding

100% of aggregate of the

paid up share capital and

free reserves, and such

company shall file the

details of monies so

accepted to the Registrar in

such manner as may be

specified

Till now, a private company (non-nbfc) was permitted to accept or

renew deposits from its members subject to a limit of 25% of its

aggregate of paid up capital & free reserves and also subject to

compliance of stringent conditions laid down under the provisions of

S 73(2).

Henceforth, a private company (non-nbfc) is permitted to accept

monies (whether secured or unsecured) from its members up to a

maximum of 100% of aggregate of its paid up capital and free

reserves (which does not include securities premium). This is

however, subject to the condition of intimation of details to ROC in

prescribed manner.

Comments:

a. acceptance of monies by a private company from its

members (non company) is not excluded from the definition

of deposits.

b. there is no mandatory minimum interest clause on such

monies accepted. However, it has been clearly mandated by

the aforesaid notification that the private companies, while

complying with such exemptions provided shall ensure that

the interests of their shareholders are protected.

c. other prescribed conditions and procedures laid down in

Chapter V Rules relating to Acceptance of Deposits is

applicable.

d. manner and mode of filing of the details of aforesaid loan

from members is yet to be prescribed by MCA

e. relevant modifications in the Chapter V Rules is awaited as a

consequence of this amendment.

Procedures to be followed for taking Loan from Members (Company):

In terms of Rule 2(1)(c)(vi) of the Chapter V Rules, any amount received by a company from any

other company is excluded from the definition of deposits. Therefore, loans taken by a company

from any other company, even if such other company is its member, will not be treated as deposits.

Hence the provisions and procedures required to be followed for accepting deposits in Chapter V

under the Companies Act, 2013 will not be applicable in such cases.

Procedures to be followed for taking Loan from Members (Directors):

In terms of Rule 2(1)(c)(viii) of the Chapter V Rules, any amount received by a company from a

person who, at the time of the receipt of the amount, was a director of the company is excluded

from the definition of deposits. Therefore, loans taken by a company from its director(s), out of

his/their owned funds, even if such director(s) is its member, will not be treated as deposits. Hence

the provisions and procedures required to be followed for accepting deposits in Chapter V under the

Companies Act, 2013 will not be applicable in such cases.

Procedures to be followed for taking Loan from Members (Other than Company & Directors):

Step Particulars

1 Convene a Board Meeting for Calling a General Meeting to approve by a Special resolution,

acceptance of Loan (Deposits) from Members, up to 100% of the aggregate of paid up capital

and free reserves of the company.

2 Convene a General Meeting for seeking approval of members by a Special resolution,

acceptance of Loan (Deposits) from Members, up to 100% of the aggregate of paid up capital

and free reserves of the company.

3 Convene a Board Meeting:

a. to seek approval of the Board to borrow money under S 179(3)(d).

b. to authorise one or more directors to carry out all related compliance under the Act

and such other things as may be necessary including furnishing to deposit receipts to

the depositor and for making entries in the register of deposits.

(The above resolutions, may also be taken at the initial board meeting)

4 File Special Resolution with Registrar through Form MGT-14 within 30 days of the General

Meeting.

5 Member depositing money to submit money along with a deposit application form as

specified by the company. (No form is prescribed under the Act).

The deposit application form to contain a declaration by the intending member/depositor

that the deposit is not being made out of any money borrowed by him from any other

person. (The provisions do not exclude relatives)

6 Company to furnish a deposit receipt to the depositor in prescribed manner as per Rule 12(2)

of Chapter V Rules within 21 days from the date of receipt of money or realization date of

the cheque.

7 Company to maintain at its registered office, a separate register for deposits accepted in

prescribed manner as per Rule 14 of Chapter V Rules and enter prescribed particulars within

7 days from the date of issuance of deposit receipt.

Entries in the Register to be authenticated by a director or secretary or any other officer

authorised by the Board for this purpose.

8 Company to file the details of monies so accepted to the Registrar in such manner as may be

specified.

9 Company to file Return of Deposits in Form DPT-3 with Registrar on or before 30th June every

year including the financial year in which the deposits are repaid.

Important Points:

A. No company is permitted to accept/renew any demand deposits.

B. Minimum period of deposits should be 6 months and maximum shall not exceed 36 months

after which it shall have to be renewed.

C. A company, for meeting its urgent need of funds may accept deposits that are repayable not

earlier than 3 months provided that the quantum of such deposits shall not be more than

10% of the aggregate of paid up capital and free reserves of the company concerned.

D. Loan from members taken under the Companies Act, 1956 and not due for repayment

should not be included in the limits prescribed by the exemption notification, in my opinion.

Such loans were exempted deposits and continue to be so till they come up for renewal.

E. In terms of the Companies Act, 2013, a private company cannot accept deposits from any

other person other than its members. The process and quantum for acceptance of the same

is relaxed by the exemption notification dated 5th June, 2015 and the same is described

above.

F. Every depositor may, at any time, nominate any person to whom his deposits shall vest in

the event of his death (refer Rule 11 of the Chapter V Rules).

G. Company not to invite or accept or renew any deposit in any form, carrying a rate of

interest, exceeding the maximum prescribed by RBI for acceptance of deposits by NBFCs.

The said rate prescribed as on date is 12% p.a. In other words, the maximum interest to be

paid by a company for accepting deposits shall not exceed 12% p.a. No minimum rate is

prescribed. However, the exemption notification makes it clear that the company should

ensure that the interest of its shareholders is protected.

H. The aforesaid procedure is for acceptance of unsecured loan/deposits by a private company

from its members. In case of secured loan/deposits, the company needs to additionally

comply with the provisions of S 73(2)(f), Rule 6 to 9 of Chapter V of the Act & Rules.

I. Premature repayment of deposits, if any has to be in accordance with the provisions

contained in Rule 15 of the Chapter V Rules.