AMENDMENT 2015: DEPOSIT RULE

Ministry of Corporate Affairs came with an amendment to the Companies (Acceptance of Deposits) Rules 2014. This is second amendment to these rules but first amendment for this year. Present amendment includes:

1. Deadline for allotment of long pending share application money;
2. Introduction of credit rating for deposits;
3. Postponement of Deposit insurance; and
4. Substitution of Form DPT – 3.

Deadline for Allotment:

As we have discussed earlier here, Rule 2(1)(c) define deposit giving exclusions from deposits. Clause (vii) of Rule 2(1)(c) excludes share/security application money pending allotment from the definition of deposits. Presently, Explanation (a) to Rule 2(1)(c)(vii) mandate of share application money within 15 days unless allotted within 60 days from the date of receipt.

All legal interpretation to this explanation opine to exclude share/security application money pending allotment which stand as such in balance sheet of a company on date from which these rules came into force. Now, present amendment inserts a proviso to change present status.

If a company receives any amount by way of subscriptions to any shares, stock, bonds or debentures before the 1^st April, 2014 and disclosed in the balance sheet for the financial year ending on or before the 31^st March, 2014 against which the allotment is pending on the 31^st March, 2015, the company shall, by the 1^st June 2015, either return such amounts to the persons from whom these were received or allot shares, stock, bonds or debentures or comply with these rules. This proviso does not apply where the Companies Act, 1956 or the Securities and Exchange board of India Act 1992 or Rule or regulations made there under require a specified period.

SEBI Act and rules or regulations made there under does not provide a longer period for allotment which may result in share application money pending allotment. Under the Companies Act, 1956 there was no specified period for allotment.

There was a reference of allotment in Sections 69 to 75 of the Companies Act 1956 had not prescribed any period within which allotment should be made. Close reading of these sections suggest that allotment became due immediately after receiving share application money. There was but just a reference for credit to Investor Education and Protection Fund under Section 205C with words, “no amount of the application moneys received by the companies for allotment of any securities and due for refund has been remain unclaimed and unpaid for a period of seven years from the date they became due for payment.

After insertion of proviso to Explanation (a) to Rule 2(1)(c)(vii) all companies must allot securities against “Sahre/Securities Application Money Pending Allotment” before 1^st June 2015 or comply with Deposit Rules.

I look Sahara like situation for many companies here. I hope, by this insertion of proviso to Explanation (a) to Rule 2(1)(c)(vii) government may be able to get huge fund for Investor Education and Protection Fund on or before 30^th May 2022 as per clause (h) to Section 125(2) read with its proviso.

Other changes in definition:

Item (b) of Sub – Clause (xii) to Rule 2(1)(c) has been amended to the effect:

Any amount received in the course of, or for the purposes of, the business of the company – as advance, accounted for in any manner whatsoever, received in connection with consideration for property consideration for an immovable property under an agreement, provided that such amount is adjusted against the property against such property in accordance with the terms of agreement or arrangement.

This amendment excludes long term dealers’ advance or advance of business receipts which are covered elsewhere.

The Explanation for Sub – Clause (xii) to Rule 2(1)(c) has also been amended to the effect:

“For the purpose of this sub – clause the amount referred to in the first proviso referred to in the first proviso shall be deemed to be deposits on expiry of fifteen days from the date they became due for refund.”

As there is no second proviso, this is just a drafting correction.

Credit Rating for Deposits:

We have discussed Terms and Conditions for Deposits earlier here. Present amendment adds a continuous condition of credit rating for acceptance of deposits. A Sub – rule (8) to Rule 3 is inserted:

Every eligible company shall obtain, at least once in a year, credit rating for deposits accepted by it in the manner specified herein below and a copy of the rating shall be sent to the Registrar of companies along with the return of deposits in Form DPT – 3:

Name of the agency	Minimum investment Grade Rating
The Credit Rating information Services of India Ltd.	FA- (FA Minus)
ICRA Ltd.	MA- (MA Minus)
Credit Analysis and Research Ltd.	CARE BBB(FD)
Fitch Ratings India Private Ltd.	tA-(indxFD)
Brickwork Ratings India Pvt Ltd.	BWRFA
SME Rating Agency of India Ltd.	SMERA A

This is an yearly compliance to be complained with once a year. The year starts with date of acceptance of deposit. Presently, Form DPT – 1 Circular or circular in the form of advertisement inviting deposit ask for “Credit rating obtained, Name of Credit Rating Agencies, Rating Obtained, meaning of the rating obtained, Date on which rating obtained” in its Point 2(h) in accordance with clause (1) of Section 73(2) of the Companies Act 2013.

Postponement of Deposit insurance:

As we discussed earlier here, The Companies (Acceptance of Deposits) Amendment Rules, 2014 inserted following proviso to sub – rule (1) of Rule 5:

“Provided that the companies may accept the deposits without deposit insurance contract till the 31st March, 2015.”

Now, this proviso is substituted to give this postponement an extension up to one year.

“Provided that the companies may accept deposits without deposit insurance contract till the 31^st March, 2016 or till the availability of a deposit insurance product, whichever is earlier.”

I do not consider amendment to this proviso good as this give law into hand of market forces. At any moment an insurance company may launch deposit insurance product (of course after IRDA approval) and make this rule suddenly redundant. This is now advisable to consult IRDA or insurance companies before accepting deposit under these rules.

Substitution of Form DPT – 3:

Present Form DPT – 3 substituted with a new Form DPT – 3. New Form has an entry for Credit rating obtained and attachment for copy of credit rating. Please note, this is an yearly return of deposits.