Division I

Acceptance of Deposits by other than NBFCs

Chapter 1

Introduction

1.     Introduction 

1.1    The Importance of Regulating Deposits 

1.2    Overview of Sections 73 to 76A of the Companies Act, 2013 

1.3    The Companies (Acceptance of Deposits) Rules, 2014 

1.4    Non-Banking Financial Companies and Public Deposits 

1.5    Foreign Exchange Management (Deposit) Regulations, 2016 

1.6    Objective of Regulating Acceptance of Deposits by Private Companies 

1.7    Scope and Objectives of This Book 

Chapter 2

Acceptance of Deposits by the Companies other than NBFCs

1.     Features of Deposits 

1.1      Deposits – whether actionable claim   

1.2      Loans versus deposits 

1.3      Acceptance of deposits from director – whether a related party transaction under section 188 

2.     Amounts not Considered as Deposits 

3.     Acceptance of Deposits from Public by Eligible Companies 

3.1      Acceptance versus renewal

3.2      Acceptance of deposits from public by eligible company 

3.3      Credit rating 

3.4      Charge on assets of the company 

3.5      Maintenance of liquid assets and creation of deposit repayment reserve account

3.6      Other provisions of Chapter V to apply 

3.7      Limits on accepting deposits from public 

3.8      Procedure for application before NCLT if deposits from public are not repaid or interest is not paid 

4.     Acceptance of Deposits from Members 

4.1      Circular to members with statement of financial position 

4.2      Filing a copy of circular and statement with ROC  

4.3      Deposit Repayment Reserve Account in a scheduled bank – based and computed for the deposits maturing only in the “following financial year” 

4.4      Maintenance of liquid assets and creation of deposit repayment reserve account

4.4.1       Case Studies for Deposit Repayment Reserve Account

Case Study 1:   Compliance with the 20% Deposit Requirement

Case Study 2:   Failure to Maintain the 20% Minimum Balance 

Case Study 3:   Partial Compliance and Delayed Deposit

Case Study 4:   Early Withdrawal for Deposit Repayment

Case Study 5:   Full Compliance with Deposit Repayment Reserve Rules 

4.5      Deposit Insurance – now not required 

4.6      Certificate that company is not in default in repayment of deposits and interest

4.7      Security for repayment of deposit and interest appointment of deposit trustees and execution of trust deed 

4.8      Tenure of Deposit

4.9      Deposits in joint names 

4.10   Limits on accepting deposit by eligible company from the members 

4.11   Limits on accepting deposits from members by private company and public companies 

4.12   Limits on accepting deposits from public by Government Company 

4.13   Interest and brokerage payable 

4.14   Terms of deposit cannot be changed 

4.15   Credit rating to be obtained at least once a year

4.16   Circular by company for accepting deposit from members 

4.17   Advertisement by company for inviting deposits 

4.18   Certificate from statutory auditors shall also be attached to the circular

4.19   Authentication of advertisement or circular

4.20   Period of validity of circular or advertisement

4.21   Form of application for deposit and power to nominate 

4.22   Deposit receipt to be furnished within 21 days from the date of receipt of money 

4.22.1     Suggested format for a Deposit Receipt as required under Rule 12 of the Companies (Acceptance of Deposits) Rules, 2014 

4.23   Register of public deposits 

4.24   Premature repayment of deposit

4.24.1     Case Studies 

Case Study 1:   Premature Repayment with Interest Reduction 

Case Study 2:   Premature Repayment for Military Personnel During an Emergency 

Case Study 3:   Premature Repayment Due to Rule 3 Compliance 

Case Study 26: Premature Renewal of Deposit for Higher Interest Rate 

Case Study 27: Exclusion of Part-Year Periods in Interest Calculation 

4.25   Annual return of deposits 

4.26   Disclosure in financial statement about money received from directors and their relatives 

4.26.1     One-time return 

4.27   Repayment of deposit and payment of interest

4.28   Penal rate of interest @18% p.a.

4.29   Apply to NCLT if deposit is not repaid in time 

4.30   Punishment for contravention 

4.31   No buy back if company is in default

4.32   Disqualification of directors 

5.     Repayment of Principal and Payment of Interest Electronically in Case of Listed Entities 

6.     Repayment of Deposits, etc., Accepted before Commencement of this Act

6.1      Filing statement with ROC in respect of unpaid deposits 

6.2      Deposits accepted by private companies from its directors, members and relatives prior to 1-4-2014 – whether 'deposits' under the Companies Act, 2013 

6.3      NCLT can allow further time for repayment

6.4      Penalty for non-repayment of deposits or interest thereon 

6.5      No buy back if company is in default

6.6      Disqualification of directors 

7.     Damages for Fraud in Respect of Deposits Accepted Prior to 1-4-2014 

8.     Punishment for Contravention of Section 73 or 76 

8.1      Officer in default

8.2      Punishment for fraud under section 447 

8.3      Factors for determining level of punishment

8.4      Lesser penalties for certain companies 

9.     Punishment for false statement

10.  Quantum of Deposits at a Glance 

11.  Comparative Analysis – Points of Differences and Points of Similarities 

11.1   Points of difference 

11.2   Points of similarities 

Chapter 3

Amount Received from the Central or State Government,
or Whose Repayment is Guaranteed by them

Case Study 1:   Loan from the Central Government for Infrastructure Development

Case Study 2:   State Government Grant for Rural Development Projects 

Case Study 3:   Loan from Local Authority for Affordable Housing 

Case Study 4:   Loan from Statutory Authority for Clean Energy Projects 

Case Study 5:   Loan from the State Government for Industrial Development

Chapter 4

Amount Received from Foreign Governments, Banks,
Multilateral Institutions, and Foreign Entities

Case Study 1:   Loan from the International Finance Corporation (IFC) for Renewable Energy Projects 

Case Study 2:   Funding from a Foreign Export Credit Agency for an Indian Exporter

Case Study 3:   Loan from Asian Development Bank (ADB) for Infrastructure Development

Case Study 4:   Investment from a Foreign Collaborator in an Indian Start-up 

Case Study 5:   Investment from Foreign Corporate Entity for Joint Venture in Manufacturing 

Chapter 5

Loans or Facilities from Banks, SBI, Subsidiaries,
and Other Banking Institutions

Case Study 1:   Loan from SBI for Plant Expansion 

Case Study 2:   Loan from SBI Subsidiary for Infrastructure Projects 

Case Study 3:   Loan from a Notified Banking Institution 

Case Study 4:   Loan from Co-operative Bank for Rural Development

Case Study 5:   Loan from Corresponding New Bank for Business Expansion 

Chapter 6

Loans or Financial Assistance from Public Financial InstitutionRegional Financial Institutions, Insurance Companies,
or Scheduled Banks

Case Study 1:   Loan from Life Insurance Corporation of India (LIC) for Real Estate Development

Case Study 2:   Financial Assistance from North Eastern Development Finance Corporation (NEDFi) for Agricultural Projects 

Case Study 3:   Financial Assistance from Public Financial Institution (IFCI) for Power Plant Expansion 

Case Study 4:   Loan from Insurance Company for Healthcare Expansion 

Case Study 5:   Financial Assistance from Scheduled Bank for Infrastructure Project

Chapter 7

Amount Received Against the Issue of Commercial Paper or
Other RBI-Approved Instruments

Case Study 1:   Issuance of Commercial Paper to Fund Working Capital Requirements 

Case Study 2:   Issue of Commercial Paper to Repay Short-Term Debt

Case Study 3:   Issuance of Short-Term Bonds in Compliance with RBI Regulations

Case Study 4:   Commercial Paper for Seasonal Business Financing 

Case Study 5:   Issue of Promissory Notes to Raise Short-Term Capital

Chapter 8

Amount Received from Another Company

Case Study 1:   Loan from Holding Company to Subsidiary 

Case Study 2:   Inter-Company Loan in a Joint Venture 

Case Study 3:   Loan from Group Company for Working Capital

Case Study 4:   Loan from a Company to an Associate Company 

Case Study 5:   Loan from Unrelated Company for Strategic Investment

Chapter 9

Amount Received as Share Application Money or
Advance Towards Allotment of Securities Pending Allotment

Case Study 1:   Timely Allotment of Shares After Share Application Money Received 

Case Study 2:   Delayed Allotment of Shares and Refund of Application Money 

Case Study 3:   Failure to Refund Share Application Money Within 15 Days 

Case Study 4:   Application Money for Debentures Pending Allotment

Case Study 5:   Share Application Money for Convertible Preference Shares 

Chapter 10

Amount Received from Directors or Relatives of Directors

Case Study 1:   Loan from a Director for Business Expansion 

Case Study 2:   Loan from a Director’s Relative for Product Development

Case Study 3:   Failure to Submit Declaration for a Director’s Loan 

Case Study 4:   Loan from Director’s Spouse for Acquisition 

Case Study 5:   Partial Declaration for a Director’s Loan 

Chapter 11

Amount Raised by the Issue of Secured Bonds or Debentures anAmount Raised by Issue of Non-Convertible Debentures (NCD
Not Constituting a Charge on the Company’s Assets

Case Study 1:   Issuance of Secured Debentures for Infrastructure Project

Case Study 2:   Bonds Compulsorily Convertible into Equity Shares 

Case Study 3:   Debenture Issue Exceeding Asset Value 

Case Study 4:   Issue of Non-Convertible Debentures Secured by Plant and Machinery 

Case Study 5:   Convertible Debentures with a 10-Year Conversion Period 

Case Study 6:   Issuance of NCDs Without Charge for Infrastructure Expansion 

Case Study 7:   NCDs for Refinancing Existing Debt

Case Study 8:   NCD Issue for Expansion Without Collateral

Case Study 9:   NCD Issuance for Short-Term Working Capital Needs 

Case Study 10:                                                           NCD Issue Amid Financial Restructuring 

Chapter 12

Amount Received from Employees under a
Contract of Employment

Case Study 1:   Security Deposit for Senior Managerial Position 

Case Study 2:   Security Deposit for a Chief Financial Officer

Case Study 3:   Excess Security Deposit Beyond Annual Salary 

Case Study 4:   Security Deposit from Employee in Sales Role 

Case Study 5:   Interest-Bearing Security Deposit

Chapter 13

Non-Interest Bearing Amounts Held in Trust

Case Study 1:   Escrow Funds for M&A Transaction 

Case Study 2:   Litigation Funds Held in Trust

Case Study 3:   Charitable Donations Held in Trust for a Non-Profit

Case Study 4:   Security Deposit Held for Contractual Performance 

Case Study 5:   Settlement Funds Held in Trust for a Client

Chapter 14

Amount Received in the Ordinary Course of Business

Case Study 1:   Advance for the Supply of Goods 

Case Study 2:   Advance for Provision of IT Services 

Case Study 3:   Security Deposit for Contract Performance 

Case Study 4:   Advance for Immovable Property Sale 

Case Study 5:   Advance for Long-Term Capital Goods Project

Case Study 6:   Partial Delivery of Goods Beyond the 365-Day Window  

Case Study 7:   Legal Dispute Delaying Contractual Performance 

Case Study 8:   Advance for Services Not Rendered Due to Force Majeure 

Case Study 9:   Advance for a Capital Goods Project with Extended Timelines 

Case Study 10:                           Sale of Immovable Property Failing Regulatory Clearance 

Case Study 11:                                                        Advance for International Export Services 

Case Study 12: Security Deposit for Long-Term Construction Contract with Substantial Delays 

Case Study 13:                                           Advance for Warranty and Maintenance Services 

Case Study 14:                             Advance Received under a Sectoral Regulator’s Approval

Case Study 15:                                         Advance for Subscription to Electronic Publication 

Case Study 16:                    Advance for Maintenance Services Beyond Common Practice 

Case Study 17:                                                 Advance for Subscription to Print Publications 

Case Study 18:                                            Inter-Company Advance for Contract Execution 

Case Study 19:                                           Advance from an Individual Customer for Goods 

Case Study 20: Gold Savings Scheme and its Compliance under the Companies Act, 2013 

Chapter 15

Unsecured Loans Brought in by Promoters in Compliance wit
Stipulations of Lending Institutions

Case Study 1:   Promoter Loan for Debt Restructuring 

Case Study 2:   Loan from Promoter’s Relative for a New Project

Case Study 3:   Partial Repayment of Institutional Loan and Retention of Promoter Loan 

Case Study 4:   Non-Compliance with Lender’s Stipulation for Promoter Loan 

Case Study 5:   Loan from Promoters After the Bank Loan is Repaid 

Chapter 16

Amount Accepted by Nidhi Companies in Accordance with Rul

Case Study 1:   Acceptance of Deposits Within the Prescribed Limit

Case Study 2:   Deposits Accepted from Non-Members 

Case Study 3:   Violation of Maximum Deposit Limits 

Case Study 4:   Failure to Maintain Membership Ratio 

Case Study 5:   Closure of Membership and Refund of Deposits 

Chapter 17

Amount Received by Way of Subscription under the
Chit Funds Act, 1982

Case Study 1:   Chit Fund Subscription Collected in Accordance with the Act

Case Study 2:   Chit Fund Failing to Register under the Act

Case Study 3:   Early Termination of a Chit Fund Scheme 

Case Study 4:   Unregistered Chit Fund Offering Higher Returns 

Case Study 5:   Chit Fund Operating in Multiple States Without Proper Registration 

Chapter 18

Amount Received under a Collective Investment Scheme

Case Study 1:   SEBI-Registered Real Estate Collective Investment Scheme 

Case Study 2:   Non-Compliance with SEBI Regulations in a CIS 

Case Study 3:   Expansion of SEBI-Registered CIS to Other Projects 

Case Study 4:   Failure to Provide Regular Disclosures to Investors in a CIS 

Case Study 5:   Redemption of Collective Investment Scheme 

Chapter 19

Convertible Notes Issued by Start-Up Companies

Case Study 1:   Convertible Note Issued by Tech Start-Up 

Case Study 2:   Convertible Note with a 12-Year Repayment Term   

Case Study 3:   Convertible Note from Multiple Investors in Tranches 

Case Study 4:   Convertible Note with Immediate Repayment

Case Study 5:   Convertible Note from a Non-Recognized Start-Up 

Chapter 20

Amount Received from SEBI-Registered Funds

Case Study 1:   Investment by an AIF into a Technology Start-Up 

Case Study 2:   Investment from Domestic Venture Capital Fund 

Case Study 3:   Real Estate Investment from a REIT  

Case Study 4:   Infrastructure Investment by an InvIT  

Case Study 5:   Investment from Mutual Fund in Debt Instruments 

Chapter 21

Amount Outstanding Towards Trade Creditors for
More Than 365 Days – Whether Deposits

Case Study 1:   Outstanding Payment for Raw Materials Beyond 365 Days 

Case Study 2:   Long-Term Trade Payable with Revised Terms 

Case Study 3:   Trade Payable Outstanding Beyond 365 Days Without Formal Extension 

Case Study 4:   Long-Term Payment Arrangement for Ongoing Supply 

Case Study 5:   Conversion of Trade Payable into a Loan Treated as a Deposit

Case Study 6:   Supplier's Advance for Steel Supply - Compliance and Regulatory Implications 

Chapter 22

Declaration by Director and Depositor

1.     Format for Application and Declaration 

(i)      Sample Application Form for Deposits 

(ii)    Sample Declaration by Director/Relative/Depositor

Chapter 23

Banning of Unregulated Deposit Schemes Act, 2019

1.      Major Definitions 

2.      Banning of Unregulated Deposit Schemes 

2.1     Punishment for contravention of section 3 

2.2     Regulated Deposit Schemes 

3.      Fraudulent default in Regulated Deposit Schemes 

3.1     Punishment for contravention of section 4 

4.      Wrongful inducement in relation to Unregulated Deposit Schemes 

4.1     Punishment for contravention of section 5 

5.      Certain scheme to be Unregulated Deposit Scheme 

6.      Competent Authority 

7.      Designated Court

8.      Central database 

8.1     Information relating to deposit takers 

9.      Information of business by deposit taker

9.1     Form and manner of intimation 

9.2     Punishment for contravention of section 10 

10.    Information to be shared 

11.    Priority of depositors claim   

12.    Precedence of attachment

13.    Application for confirmation of attachment and sale of property 

14.    Confirmation of attachment by Designated Court

14.1   Procedure to be adopted by Designated Court

15.    Attachment of property of mala fide transferees 

16.    Payment in lieu of attachment

17.    Powers of Designated Court

18.    Appeal to High Court

19.    Power of Supreme Court to transfer cases 

20.    Punishment for repeat offenders 

21.    Cognizance of offences 

22.    Offences to be cognizable and non-bailable 

23.    Investigation of offences by Central Bureau of Investigation 

24.    Power to enter, search and seize without warrant

24.1   Authorisation for search and seizure 

25.    Publication of advertisement of Unregulated Deposit Scheme 

25.1   Retraction of advertisement

26.    Protection of action taken in good faith 

27.    How BUDS Act impacts Companies which are already complying Chapter V (section 73 to section 76A) of the Companies, 2013 

Division II

Acceptance of Deposits by NBFCs
and Provisions under FEMA

Chapter 24

Acceptance of Deposits by NBFCs

1.     Non-applicability 

2.     Amounts note considered as public deposits accepted by NBFC-D  

3.     Requirement of Maintenance of Liquid Assets 

4.     Restriction on acceptance of public deposit by Non-Banking Finance Companies 

5.     Case Studies 

Case Study 1:   Applicability 

Case Study 2:   Minimum Credit Rating 

Case Study 3:   Restrictions on Acceptance of Public Deposits 

Case Study 4:   Payment of Interest on Overdue Public Deposits 

Case Study 5:   Ceiling on Quantum of Deposits 

Case Study 6:   Period of Public Deposit

Case Study 7:   Ceiling on Rate of Interest

Case Study 8:   Payment of Brokerage 

Case Study 9:   Intimation of Maturity to Depositors 

Case Study 10:                                      Repayment of Public Deposits in Case of Death 

Case Study 11:                                             Deposits from Non-Resident Indians (NRIs)

Annexure I            Timeline for Government NBFCs                                                                   

Annexure II          Draft Trust Deed                                                                                                

Annexure III        Liquid Assets (Non-Banking Finance Companies) Trustees Guidelines  

Chapter 25

Acceptance and Making of Deposits

1.     Major Definitions                                                                                                                       

2.     Deposit v Loan                                                                                                                           

3.     Deposits under Companies Act v FEMA                                                                               

4.     Restrictions on deposits between a person resident in India and a person resident outside India              

4.1     RBI’s permission                                                                                                           

5.     Acceptance of deposits by an authorised dealer/authorised bank from persons resident outside India   

5.1     Scheduled Deposits                                                                                                       

6.     Acceptance of deposits by persons other than authorised dealer/authorised bank      

7.     Other deposits made or held by authorised dealer                                                               

8.     Nomination                                                                                                                                 

Chapter 26

Borrowing and Lending Between a Person Resident in India andPerson Resident Outside India

1.     Major Definitions 

2.     Prohibition to Borrow or Lend by person resident in India unless permitted by RBI 

2.1      Use of Credit Card 

3.     Borrowing from outside India in Foreign Exchange by a Person Resident in India 

4.     Borrowing in Indian Rupees by a Person Resident in India 

5.     Lending in Foreign Exchange by a Person Resident in India 

6.     Lending in Indian Rupees by a Person Resident in India 

7.     Borrowing and lending by persons resident outside India 

8.     Continuation of loan in the event of change in the residential status of the lender/borrower

9.     Raising External Commercial Borrowings (ECB) from outside India 

10. Trade Credit for Imports 

11. Extending External Commercial Lending (ECL) to borrowers outside India 

Chapter 27

Borrowing and Lending in Rupees

1.     Prohibition on borrowing and lending in rupees 

1.1       Use of credit card 

2.     Borrowing in rupees by persons other than companies in India 

3.     Borrowing in rupees by Indian companies 

4.     Restriction on use of borrowed funds 

5.     Loans in Rupees to non-residents 

6.     Repayment of loans to non-residents by relatives 

7.     Providing housing loan in rupees to NRI or PIO by authorised dealer or a housing finance institution in India 

8.     Rupee Loans to NRI/PIO employees of Indian body corporate 

9.     Rupee loans to non-resident Indian by Resident

10.  Continuance of rupee loan/overdraft to resident who becomes a person resident outside India 

11.  Continuance of rupee loan in the event of change in the residential status of the lender

12.  Overdraft in rupee account maintained with authorised dealer in India by a bank outside India 

Chapter 28

Borrowing or Lending in Foreign Exchange

1.     Major Definitions 

2.     Prohibition to Borrow or Lend in Foreign Exchange 

3.     Borrowing and Lending in Foreign Exchange by an Authorised dealer

4.     Borrowing and Lending in Foreign Exchange by persons other than authorised dealer

5.     Other borrowings in foreign exchange under Automatic Route or with prior approval of Reserve Bank of India under the Approval Route or as Trade Credit

6.     Borrowings in Foreign Exchange under the Automatic Route 

6.1    Borrowing in Foreign Exchange up to US$ 500 million or its equivalent

6.2    Refinancing of existing borrowing in foreign exchange 

6.3    Foreign currency borrowings by successful bidders of 2G spectrum reaction 

6.4    Reserve Bank may, in consultation with the Government of India, prescribe for the automatic route, any provision 

7.     Borrowings in Foreign Exchange under the Approval Route 

8.     Trade Credit

Chapter 29

External Commercial Borrowings, FCCB,
Trade Credits and Structured Obligations

1.     Important terms used 

1.1    All-in-Cost

1.2    Approval route 

1.3    Authorised dealer

1.4    Automatic route 

1.5    Benchmark rate 

1.6    Designated Authorised Dealer Category I Bank 

1.7    ECB liability-Equity ratio 

1.8    FATF compliant country 

1.9    Foreign Currency Convertible Bonds (FCCBs)

1.10  Foreign Currency Exchangeable Bonds (FCEBs)

1.11  Foreign Equity Holder

1.12  Infrastructure Sector

1.13  Infrastructure Space Companies 

1.14  IOSCO Compliant Country 

1.15  Person Resident in India 

1.16  Real Estate Activities 

1.17  Special Economic Zone & Free Trade Warehousing Zone 

Part I — External Commercial Borrowings Framework

2.     Introduction 

2.1    ECB Framework 

2.2    Limit and leverage 

3.     Issuance of Guarantee, etc. by Indian banks and Financial Institutions 

4.     Parking of ECB proceeds 

4.1    Parking of ECB proceeds abroad 

4.2    Parking of ECB proceeds domestically 

5.     Procedure of raising ECB  

6.     Reporting Requirements 

6.1    Loan Registration Number (LRN)

6.2    Changes in terms and conditions of ECB  

6.3    Monthly Reporting of actual transactions 

6.4    Late Submission Fee (LSF) for delay in reporting 

6.5    Standard Operating Procedure (SOP) for Untraceable Entities 

7.     Powers delegated to AD Category I banks to deal with ECB cases 

7.1    Change of the AD Category I bank 

7.2    Cancellation of LRN  

7.3    Refinancing of existing ECB  

7.4    Conversion of ECB into equity 

7.5    Security for raising ECB  

7.6    Additional Requirements 

8.     Special Dispensations under the ECB framework 

8.1    ECB facility for Oil Marketing Companies 

8.2    ECB facility for Startups 

9.     Borrowing by Entities under Investigation 

10.  ECB by entities under restructuring/ECB facility for refinancing stressed assets 

11.  Dissemination of information 

12.  Compliance with the guidelines 

Part II — Trade Credits Framework

13.  Introduction 

14.  Trade Credits Framework 

15.  Trade Credits in SEZ/FTWZ/DTA  

16.  Security for Trade Credit

17.  Reporting requirements 

17.1  Monthly reporting 

17.2  Quarterly reporting 

18.  Role of Ads 

Part III — Structured Obligations

19.  Non-resident guarantee for domestic fund based and non-fund based facilities 

20.  Facility of Credit Enhancement

Appendix              List of Notifications/Circulars which have been consolidated in this  Master Direction