STEPS TO BE FOLLOWED FOR TAKING LOAN FROM MEMBERS BY PRIVATE COMPANIES

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Today, I am Providing you Steps which is to be followed for taking Loan from Members by Private Companies pursuant to Exemption Notification under the Companies Act, 2013...

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Applicability:

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

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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: ·        acceptance of monies by a private company from its members (non company) is not excluded from the definition of deposits. ·        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. ·        other prescribed conditions and procedures laid down in Chapter V Rules relating to Acceptance of Deposits is applicable. ·        manner and mode of filing of the details of aforesaid loan from members is yet to be prescribed by MCA ·        relevant modifications in the Chapter V Rules is awaited as a consequence of this amendment.

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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.

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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.

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

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• 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.

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• 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.

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

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• File Special Resolution with Registrar through Form MGT-14 within 30 days of the General Meeting
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• 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)
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• 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.
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• 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.
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• Company to file the details of monies so accepted to the Registrar in such manner as may be specified.
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• 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.

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Important Points:

1. No company is permitted to accept/renew any demand deposits.
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2. Minimum period of deposits should be 6 months and maximum shall not exceed 36 months after which it shall have to be renewed.
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3. 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.
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4. 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.
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5. 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.
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6. 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).
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7. 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.
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8. 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.
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9. Premature repayment of deposits, if any has to be in accordance with the provisions contained in Rule 15 of the Chapter V Rules.

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Disclaimer by the Author

Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of the Companies Act and Rules. The user of the information agrees that the information is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.

Credit CA SUMIT BINANI