Regulations
Deposit rules rolled back. Deposits from relatives of directors exempted
If the Act and Rules are anyway inching back to the pre-2014 scenario, was the new Companies Act 2013 needed at all?
 
The Companies Act, 2013 (Act 2013) caused major shocks and massive problems of compliance as it was implemented from 1 April 2014. One of the major areas that caused problems of compliance to small and private companies was the amended rules applicable for acceptance of ‘deposits”. It was not just an issue of compliance – it is something that shook the finances of small and private companies as most private companies were using borrowings from directors, relatives, friends and relatives as a means to provide working capital support to their businesses.
 
After causing heartburn for more than a year, thankfully, the rules are now restoring to the position that prevailed prior to the implementation of the new Act 2013, thus raising an interesting question that pops up time and again – if the Act/Rules are anyways inching back to the pre-2014 scenario, was the new Act needed at all?
 

Deposits from directors’ relatives exempted: 

 
The Ministry of Corporate Affairs (‘MCA’) vide its notification dated 15th September 2015 has issued the Companies (Acceptance of Deposits) Second Amendment Rules, 2015.
 
Deposits from directors in case of all types of companies, public or private, were exempted under the original Companies (Acceptance of Deposits) Rules, 2014.
 
Now, amount received from the relatives of directors have been excluded from the purview of definition of ‘deposits’, by insertion of the following words-
 
any amount received from a Person who, at the time of the receipt of the amount, was a director of the company or a relative of the director of the private company:
 
Provided that the director of the company or relative of the director of the private company, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board's report.
 

Deposits from shareholders in case of private companies:

 
Earlier, vide an Exemption Notification dated 5 June 2015, the MCA has exempted private company from accepting any amount from its members, subject to a condition that such amount shall not exceed 100% of the net worth.
 
There is confusion in the notification – since it exempts companies only from provisions of section 73(2), and not from the Companies (Acceptance of Deposits) Rules, 2014. The rules lay a condition that the amount of deposit accepted by companies cannot exceed 25% of net worth. Therefore, the notification laying a limit of 100% seems to be inconsistent.
 

Existing deposits from shareholders:

 
MCA vide the General Circular 05/2015 dated 30 March 2015, granted relief to private companies from complying with the conditions specified under Section 73(2) by clarifying that such amounts received from directors and directors’ relatives and members under the provisions of the Act 1956 will not constitute as deposits under Act 2013.
 
 
(Vinod Kothari is a chartered accountant, trainer and author. Niddhi Parmar works in Corporate Law Services Group at Vinod Kothari & Co)
 

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COMMENTS

Yash Bhagwat

1 day ago

Beautifully composed, compiled and summarised. Your article earned me a pat on the back. Forever grateful.

SEBI asks Life Care Infra Tech to refund money collected from investors
Life Care is also required to give wide publicity in the press regarding the refund so that no investor is missed out in the refund process, SEBI said.
 
Market regulator Securities and Exchange Board of India (SEBI) has asked Life Care Infra Tech Ltd and its directors to refund to investors’ money collected by the company with an interest of 15%.
  
“The company and its directors have also been restrained and prohibited from buying, selling or otherwise dealing in the securities market, from the date of this order till the expiry of four years from the date of completion of refunds to investors,” SEBI said in an order. 
 
Life Care Infra Tech has garnered money from investors through issuance of redeemable preference shares. SEBI Order said the company and its directors are also required to keep away from the securities market and not to approach retail investors in any manner for collecting money from the date of the Order till the expiry of four years from the date of completion of refunds to investors.
 
According to the SEBI Order, the company was engaged in fund mobilising activity through issuance of Redeemable Preference Shares, to more than 49 persons, without complying with the relevant provisions of the Companies Act, 1956.
 
Life Care is also required to give wide publicity in the press regarding the refund so that no investor is missed out in the refund process, SEBI said.
 

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SEBI directs Agri Gold Farm Estates not to collect money from investors
Agri Gold Farm Estates India was found engaged in mobilising funds from the investors under its schemes, violating the provisions of the SEBI Act and SEBI (Collective Investment Scheme) Regulations, 1999, according to a SEBI Order
 
Market regulator Securities and Exchange Board of India (SEBI) has directed Agri Gold Farm Estates India Pvt Ltd and its six directors not to collect money illegally from investors or launch any new collective investment scheme (CIS) to garner funds.
 
SEBI said, Agri Gold Farm Estates and its directors, Venkata Rama Rao Avva,  Avva Venkata Seshu Narayana Rao, Avva Hema Sundara Vara Prasad, Savadam Srinivas, Moganti Bhanuji Rao and Emmadi Sada Siva Vara Prasad Rao, will wind up all existing CIS, where investors have given money. They are also barred from approaching or involving themselves in any manner with the securities market for a period of four years.
 
The company and its directors are required to desist from disposing of their assets and to account for all their assets to SEBI.
 
Agri Gold Farm Estates was found engaged in mobilising funds from the investors under its schemes, violating the provisions of the SEBI Act and SEBI (Collective Investment Scheme) Regulations, 1999, according to the SEBI Order.
 

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