Ease of doing business after Deposit rules amended in September 2020

 

RECENT AMENDMENTS IN COMPANIES (ACCEPTANCE OF DEPOSITS) RULES, 2014

 

Attention all Start-up Companies, it’s time to hear good news on ease of doing business. There is amendment in deposit rules which permits the start ups to raise funds through corporate bonds or other convertible instruments for 10 years

 

1)    References

·         Rule 2 of the Companies (Acceptance of Deposits) Rules, 2014

·         Rule 3 of the Companies (Acceptance of Deposits) Rules, 2014

·         Companies (Acceptance of Deposits) Amendment Rules, 2020 vide MCA Notification dated 07^th September, 2020

 

2)    Transaction not be considered as Deposit

·         Rule 2 (1) (c) of the Companies (Acceptance of Deposits) Rules, 2014 gives the definition of the term DEPOSIT as “deposit includes any receipt of money by way of deposit or loan or in any other form, by a company”

·         At the same time, it also provides for a number of exceptions i.e. transactions which shall be not be considered as deposits.

·         Recently, MCA vide a notification dated 07^th September, 2020, amended one of such exceptional transaction.

·         Which states that:

an amount of twenty five lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding Ten Years from the date of issue) in a single tranche, from a person would not be regarded a deposit.

·         Prior to this amendment, the time period was of five years, which has now been amended to TEN YEARS.

·         It is a big relaxation because it means that now a start-up company can repay the convertible note even within 10 years and it would not be considered as deposit.

 

3)    Maximum limit for acceptance of Deposit

·         Rule 3 (3) of the Companies (Acceptance of Deposits) Rules, 2014 specifically mention a condition to accept a deposit that:

 

No company referred to in sub-section (2) of section 73 shall accept or renew any deposit from its members, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds thirty five per cent of the aggregate of the Paid-up share capital, free Reserves and securities premium account of the company.

·         Provided that, a Specified IFSC Public company and a private company may accept from its members monies not exceeding one hundred per cent. of aggregate of the paid up share capital, free reserves and securities premium account and such company shall file the details of monies so accepted to the Registrar in Form DPT-3.

·         As per the amendment, a private company, which is a start-up, for TEN YEARS from the date of its incorporation, is not required to comply with this condition of maximum limit for acceptance of deposit.

·         Earlier to this notification, a private company, which is a start-up, for FIVE YEARS, is not required to fulfill this condition. But now, the scope has been widened.

 

4)    CONCLUSION

After carefully considering the above two amendments, it is quite clear that they are specifically targeted to the start-up companies. And, it is a quite good and appreciable step to boost their business and also to hold the hands of the entrepreneurs of every start-up in this pandemic of Covid-19. This amendment has been step forward when DPIIT introduced new definition of Start up in the month of February 2019