TREATMENT OF SERVICE TAX
PROCEDURE FOR APPOINTMENT OF DIRECTORS UNDER COMPANIES ACT- 2013


    First of all let us make it extremely clear that as per Sec 73 of the companies act, 2013, no company shall invite, accept or renew deposits from the public. A company may accept deposits from the members of the company but not public. Only public companies fulfilling certain criteria might accept or renew deposits from the public. A director is however allowed to give deposits to a private company.

    Explanation to Rule 2(C) of the Companies Acceptance of Deposit Rules states that any amount received in the course of business of the company would be regarded as an advance and not deposit, provided such advance is appropriated against supply of goods or provision of service within 365 days from the date of the advance. RBI regulations governing Non Banking Financial Company (NBFC) is applicable to a company registered under the Companies Act 1956 by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934. So it is possible that RBI might any deposits received in the colour of an advance against supply of goods as a deposit.

    Now the question arises if deposit taken by way of assets such as gold, immovable property, etc are deposits for the purpose of the Companies Act??

    The Companies Acceptance of Deposit Rules, define a Deposit to include any receipt of money by way of deposit or loan or in any other form, by a Company, except for the specific exclusions made in the definition. Now the crucial question is whether the term receipt of money includes gold deposits too. First of all the term “or in any other form” is an inclusive term to include cash or its alternative namely payment in kind or any other mode of payment which may be possibly used to make payments under any stretch of imagination. The above term is a mischievous inclusion in the definition of deposit to satisfy all doubts whether payment in kind would qualify for a deposit. So deposit of gold shall be classified as a deposit too.
    There are also some important judgements which help us examine whether the term “money” itself used in the definition of a deposit, includes payment of gold. The courts have taken a liberal definition of the term money to include gold too. In Vadivel Achari vs. Madras Sales Tax Appellate Tribunal [1969] 23 STC 273, the Madras High Court considered the question whether payment by gold can be ‘other valuable consideration’ within the meaning of the Madras General Sales Tax Act. The Court held that money need not necessarily be confined to coins or currency notes but has a wider connotation. It was held that payment of gold could be treated as payment in the nature of cash or money consideration. That was based on the reasoning that the monetary system, both national and international, is based on gold and silver reserves, and that when currency is used, it is representing its value in gold or silver. The Allahabad High Court in Sales Tax Commissioner, UP vs. Ram Kumar Agarwal [1967] 19 STC 400 (All) also held that the term ‘money’ has also a legal meaning as well as a popular sense both of which bar the inclusion of bullion or metal of any kind as such in the concept of ‘money’. The Court explained that, what may pass for money in exceptional conditions or under the special usages and customs of a peculiar or commercially backward or primitive society is not relevant. Legally speaking, 'money' is just what a ‘legal tender’ is, or what a tradesman is legally bound to accept under the law of the country. Thus the courts have taken a very liberal meaning of the term money used in the context of payments to include gold and other metals too.

    Thus in a nutshell, two important components of the definition of deposit: “money” and “in any other form” indicate that payment other than by way of money too may be classified as a deposit.

    Key Highlights .
    1) A private Company and an un-eligible public company cannot accept loans or deposits from any person other than its Directors. For accepting any loan from person other than Directors the company will have to comply with all the conditions mentioned including creation of reserve account, deposit insurance, credit rating, etc.
    . 2) Share application money received but not allotted shall be treated as deposit.
    3) Any money received as advance in the course of ordinary business shall be treated as deposit if goods or services are not provided within 365 days of receipt.
    4) Private Companies and an un-eligible public company had to file a return of deposits on 30th June, 2014 if they had any deposit received from person other than director.
    5) As of now if the private companies have any loan received from any person other than director then they have to file a statement with the Registrar within 3 months of the commencement of the Act i.e. 30th June 2014 in Form DPT-4.
    6) The Companies Acceptance of Deposit rules are not applicable to: 1)A Banking Company, 2)A Non Banking Finance Company registered with RBI, 3)A Housing Finance Company registered with National Housing Bank, 4)Any other Company which the Central Government may specify.
    Section 76 Eligible Company.
    Eligible Company means:-
    1) A public Company and it has either of the following.
    2) Net worth of not less than one hundred crore rupees or turnover of not less than five hundred crore rupees.
    3) It has obtained the prior consent of the company in general meeting by means of a special resolution.
    4) It has filed the above resolution with the Registrar of Companies before making any invitation to the Public for accepting deposits.
    Exception: An eligible company may accept deposits my means of an ordinary resolution if it is accepting deposits within the limit specified under clause (c) of sub section (1) of section 180.
    Conditions for acceptance of Deposit.
    1) No Company shall accept or renew deposit whether, secured or unsecured, which is repayable on demand or upon receiving a notice within a period of less than 6 months or more than 36 months from the date of acceptance or renewal of such deposit.
    Exception : A company may for the purpose of meeting its short term requirements of funds accept or renew deposits whose repayment is before six months provided they do not exceed 10% of the aggregate of the paid up share capital and free reserves of the company and they are not repayable before 3 months from the date of deposits.
    2) Deposits may be accepted in Joint names not exceeding 3.
    3) A non Eligible company Shall accept deposit only to the extent of 25% of the aggregate of paid up share capital and free reserves.
    4) A) Deposit from members shall not exceed 10% of the aggregate of paid up share capital and free reserves. B) Deposit from others shall not exceed 25% of the aggregate of paid up share capital and free reserves (excluding deposit from members) .
    5) A Government company shall not accept deposit more than 35% of the aggregate of paid up share capital and free reserves.
    6) Interest or Brokerage paid should not exceed the maximum rate of interest or brokerages prescribed by the RBI for acceptance of deposits by Non Banking Finance Companies.
    7) The Company shall not reserve to itself whether directly or indirectly a right to alter, to the prejudice or disadvantage of the depositor, any of the terms and conditions of the deposit, deposit trust deed and deposit insurance contract. .

    Non acceptance of deposits by private companies is very cumbersome to comply with. With these rules in place, existing private companies having deposits from any person other than director shall have to return the deposits by 31st March, 2015. The bottom line is that private companies shall now have to capitalize the loans appearing in the books of accounts or return back the deposits by 31st March, 2015.