Debt Instruments - Concepts

Rule 2(c)(x) of the Companies (Acceptance of Deposits) Rules, 2014 states that any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest-bearing security deposit is not a deposit.

In the given case, company took ₹ 1 lakh from Partho under an employment contract @3% interest per annum. Partho is paid a salary of ₹ 60,000 per month i.e., ₹ 7.20 lakh per year. The amount taken by the company is less than the annual salary of the employee. Thus, one limb of the conditions of clause is fulfilled. However, the amount is interest bearing. The fact that rate of interest is less than the rate of external loans has no relevance.

Hence, the dual conditions under the rule are not complied with and the amount will fall within the meaning of the term ‘deposit’. The comment by the internal auditors that there is non-compliance of provisions of the Companies Act, 2013 is correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 3(b) (Syllabus 2022).

Rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules, 2014 provides the provisions relating to various amounts received by a company which will not be considered as deposits. In terms of this Rule, the answers to the given situations shall be as under:

(i)Rs. 12,00,000 raised by Tiwari Exports Limited through issue of non- convertible debentures not constituting a charge on the assets of the company and listed on recognised stock exchange as per the applicable regulations made by the SEBI, will not be considered as deposit in terms of sub- clause (ixa) of Rule 2 (1) (c).

(ii)Rs. 2,00,00,000 (Rupees Two crore) received by National Refrigeration Limited from Mr. Ankit, as an advance for the supply of goods, but appropriated the said advance after the expiry of 390 days (i.e., more than 365 days). Hence, this amount will be considered as deposit in terms of Rule 2 (1) (c)(xii)(a).

(iii)Rs. 50,00,000 by ABC Pvt Limited from Ms. Priya (i.e. relative of Director), will not be considered as deposit in terms of sub-clause (viii) of Rule 2 (1) (c), because she has given a declaration that the amount is given out of her self-acquired funds and not from borrowing etc.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 3(a) (Syllabus 2022).

Section 2(31) of the Companies Act, 2013 read with Rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014, ‘deposit’ includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include the receipts specified under the Rules.

The receipts under Serial No. 1, 2 and 3 will fall in the exempted category and shall not be considered as deposits.

The other 2 receipts at Serial No. 4 and 5 will constitute the deposits.

Rule 16 of the Companies (Acceptance of Deposits) Rules, 2014, states that every company to which these rules apply, shall on or before the 30th day of June, of every year, file with the Registrar, a return in Form DPT-3 along with the fee as provided in the Companies (Registration Offices and Fees).

Explanation - It is hereby clarified that Form DPT-3 shall be used for filing return of deposit or particulars of transaction not considered as deposit or both by every company other than Government company.

Considering the explanation read with Form DPT-3, XYZ Ltd. is required to report all transactions at Serial No. 1 to 5 in Form DPT-3 whether considered as deposit or not.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 3(c) (Syllabus 2022).

According to the section 2(31) of the Act read with Rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014, ‘deposit’ includes inter alia any receipt of money by way of deposit or loan or in any other form by a company, but does not include-

Rule 2(1)(c) (viii)- 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.

In the given case, Harsh has borrowed money from his friend. If he gives the same borrowed money to the company, he cannot give declaration in writing under the above sub rule and hence, if he does so, it will be in violation of the Act.

Rule 2(1)(c)(xiii)- Any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank subject to fulfilment of the following conditions:- (a) the loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance ; and (b) the loan is provided by the promoters themselves or by their relatives or by both; and (c) the exemption under this sub-clause shall be available only till the loans of financial institution or banks are repaid and not thereafter.

Thus, loan given by Harsh to Himmat Pvt. Ltd. will not be considered as Deposit if the loan satisfies the conditions as per rule 2(1)(c)(xiii) of the Companies (Acceptance of Deposits) Rules, 2014.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2(c) (Syllabus 2017).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 1(b) (Syllabus 2017).

Rule 2(c)(x) of Companies (Acceptance of Deposits) Rules, 2014 states that any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest bearing security deposit is exempted from the definition of the Deposit.

In the given case, company took Rs. 7 lakh from Arnav under an employment contract @4% interest per annum. Arnav is paid a salary of Rs.75,000/- per month i.e. Rs.9 lakh per year. The amount taken by the company is less than annual salary of the employee. Thus one limb of the conditions of clause is fulfilled. However, the amount is interest bearing.

Hence, the dual conditions under rules are not complied with and the amount will fall within the meaning of term 'deposit'. The comment by the auditor that there is a non-compliance of provisions of the Companies Act, 2013 is correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2A(iii) (Old syllabus).

(i)The conditions governing the appointment of debenture trustee or trustees is prescribed under Rule 18(2)(c) the Companies (Share Capital and Debenture) Rules, 2014.

A person shall not be appointed as a debenture trustee, if he-

i.beneficially holds shares in the company;

ii.is promoter, director or key managerial personnel or any other officer or an employee of the company or its holding, subsidiary or associate company;

iii.is beneficially entitled to moneys which are to be paid by the company otherwise than as remuneration payable to the debenture trustee;

iv.is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such holding company;

v.has furnished any guarantee in respect of the principal debts secured by the debentures or interest thereon;

vi.has any pecuniary relationship with the company amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;

vii.is relative of any promoter or any person who is in the employment of the company as director or key managerial personnel.

In view of the above, Parimal cannot be appointed as debenture trustee in Xplore Finance Services Ltd. by virtue of restriction under iv above.

However, Parama can be appointed as debenture trustee due to the fact that Prateek is not a KMP/Director/Promoter in the organisation. Further, she is neither an officer of the company nor the employee of the company. Here amount of indebtedness is not important.

(ii)In terms of rule 18(2)(d) of the Companies (Share Capital and Debenture) Rules, 2014, the Board may fill any casual vacancy in the office of the trustee but while any such vacancy continues, the remaining trustee or trustees, if any, may act:

Provided that where such vacancy is caused by the resignation of the debenture trustee, the vacancy shall only be filled with the written consent of the majority of the debenture holders.

Yes. A debenture trustee can be removed from office before expiry of term. Rule 18(2)(e) states any debenture trustee may be removed from office before the expiry of his term only if it is approved by the holders of not less than three fourth in value of the debentures outstanding, at their meeting.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 3(c) (Syllabus 2022).

Section 71(4) of the Companies Act, 2013 read with Rule 18(7) of Companies (Share Capital and Debentures) Rules, 2014, provides that when debentures are issued by a company, the company shall create a debenture redemption reserve account (DRR) out of the profits of the company available for payment of dividend. The amount credited to such account shall not be utilized by the company except for the redemption of debentures.

In view of these provisions, the proposed action of the Board to utilize the DRR account for payment of interim dividend and conversion of partly paid equity shares into fully paid equity shares shall not be valid.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2(c) (Syllabus 2017).

As per the provisions of Section 71 of the Companies Act, 2013 read with the Companies (Share Capital and Debenture) Rules, 2014 the answer is provided as below:

(i)The validity of redemption period.

As per Section 71(3) of Companies Act 2013, read with Rule 18(1) of the Companies (Share Capital and Debentures) Rules, 2014, the Companies engaged in setting up of infrastructure projects may issue secured debentures for a period exceeding 10 years but not exceeding 30 years. Greenfield Infrastructure Ltd., is engaged in large-scale infrastructure projects and the redemption period is 17 years which is more than 10 years but less than 30 years. Hence, the redemption period is valid.

(ii)Mandatory compliance requirement of appointing debenture trustee, the time limit for such appointment and the execution of the trust deed.

As per Section 71(5) of Companies Act 2013, read with Rule 18(2) of the Companies (Share Capital and Debentures) Rules, 2014- No company shall issue a prospectus or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its debentures, unless the company has, before such issue or offer, appointed one or more debenture trustees. The names of the debenture trustees shall be stated in letter of offer inviting subscription for debentures and also in all the subsequent notices or other communications sent to the debenture holders.

The Company shall before the appointment of debenture trustee or trustees obtain a written consent from such debenture trustee or trustees proposed to be appointed and a statement to that effect shall appear in the letter of offer issued for inviting the subscription of the debentures.

As per Rule 18(1)(c) of the Companies (Share Capital and Debentures) Rules, 2014-The company shall appoint the debenture trustee before the issue of prospectus or letter of offer for subscription of its debentures and not later than 60 days after the allotment of the debentures, execute a debenture trust deed to protect the interest thereon.

(iii)The event under which it is the duty of the debenture trustee to appoint nominee director

The duties of debenture trustee or trustees prescribed under Rule 18(3) of the Companies (Share Capital and Debenture) Rules, 2014 includes inter alia the duty relating to appointment of a nominee director on the Board of the company in the event of-

(i)two consecutive defaults in payment of interest to the debenture holders; or

(ii)default in creation of security for debentures; or

(iii)default in redemption of debentures.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 4(c) (Syllabus 2022).

As per Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014, Debenture Redemption Reserve is not required for debentures issued by NBFCs registered with Reserve Bank of India under section 45- IA of the RBI Act, 1934 for both public as well as privately placed debentures.

The company shall create a Debenture Redemption Reserve for the purpose of redemption of debentures, in accordance with the conditions given below :

(a)the Debenture Redemption Reserve shall be created out of the profits of the company available for payment of dividend;

(b)the company shall create Debenture Redemption Reserve (DRR) in accordance with conditions: -

(i)No DRR is required for debentures issued by All India Financial Institutions (AIFIS) regulated by Reserve Bank of India and Banking Companies for both public as well as privately placed debentures. For other Financial Institutions (Fls) within the meaning of clause (72) of section 2 of the Companies Act, 2013, DRR will be as applicable to NBFCs registered with RBI. (earlier to 16.8.2019)

(ii)For NBFCs registered with the RBI under Section 45-1A of the RBI Act, 1934, and for housing finance companies registered with the national housing bank, the DRR requirement has been dispensed w.e.f 16th Aug 2019.

Accordingly, no Debenture Redemption Reserve is required to be created by ARCFIL in the given case.

The above exemptions also apply to listed companies if the money was generated by privately placed debentures. Hence under both circumstances DRR is not required to be created.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(d) (Old syllabus).

Section 71 read with Rule 18 of the Companies (Share Capital and Debentures) Rules 2014 mandates certain classes of companies issuing debentures to create Debentures Redemption Reserve account out of the profits of the company available for payment of dividend and the amount credited to such account shall not be utilised by the company except for the redemption of debentures.

However, every Listed Companies (including All India Financial Institutions(AIFIs) regulated by Reserve Bank of India and Banking Companies, listed/unlisted NBFCs and Housing Finance Companies) have been exempted from creation of Debenture Redemption Reserve (in case of both public issue as well as privately placed debentures, as applicable).

Whereas, an unlisted company is required to create a Debenture Redemption Reserve for privately placed debentures for a value of 10% of the outstanding debentures.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(b) (Old syllabus).

Section 71(4) of the Companies Act. 2013, provides that when debentures are issued by a company under this section, the company is required to create a Debenture Redemption Reserve Account out of the profits of the company available for payment of dividend and the amount credited to such account shall not be utilized by the company except for the redemption of debentures.

The provisions for creation of Debenture Redemption Reserve Account (DRR) for various classes of companies as per Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 are as follows:

(i)All India Financial Institutions (AIFIs) regulated by Reserve Bank of India and Banking Companies- No DRR is required for debentures issued by them for both public as well as privately placed debentures.

(ii)Financial Institutions (FIs) within the meaning of clause (72) of Section 2 of the Companies Act, 2013- DRR shall be as applicable to NBFCs registered with RBI.

(iii)For NBFCs registered with the RBI under Section 45 – IA of the RBI Act,1934, and for Housing Finance Companies registered with the National Housing Bank:

-Listed NBFCs and Housing Finance Companies- No DRR is required in case of both public issue of debentures as well as privately placed debentures.

-Unlisted NBFCs and Housing Finance Companies- No DRR is required in case of privately placed debentures.

(iv)Listed Companies- No DRR is required in case of both public issue of debentures as well as privately placed debentures.

(v)Unlisted companies- Adequacy of DRR shall be 10% of the value of the outstanding debentures.

Therefore, Debenture Redemption Reserve is not mandatory for every company issuing Debentures.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 1(c) (Old syllabus).

Section 71(4) of Companies Act, 2013, read with Rule 18(7) of the Companies (Share Capital & Debentures) Rules, 2014 provides for creation of a Debenture Redemption Reserve (DRR) out of the profits of the company available for payment of dividend. The amount credited to such account shall not be utilised by the company except for the redemption of debentures.

The provisions for creation of DRR for manufacturing companies are 25% of the value of outstanding debentures issued through public issue as per present SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and also 25% DRR is required in the case of privately placed debentures by listed companies. For unlisted companies issuing debentures on private placement basis, the DRR will be 25% of the value of outstanding debentures.

Every company required to create Debenture Redemption Reserve shall on or before the 30th day of April in each year, is required to invest or deposit a sum which shall not be less than 15% of the amount of debentures maturing during the current financial year ending 31st March of next year.

In case of partly convertible debentures, Debenture Redemption Reserve shall be created in respect of non- convertible portion of debenture issue in accordance with this rule.

Since, only 50% of the debentures are convertible, for the non-convertible part the DRR is required to be created. Hence, only for 3 crore worth of debentures DRR is required. Therefore, 25% of 3 crore is 75 lakhs to be created as DRR and 45 Lakhs (15%) deposited in the invested bank account or in securities, etc. during the current financial year.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2A(iii) (Syllabus 2017).

Section 71 of the Companies Act 2013, read along with rule 18(2) of the Companies (Share capital and Debentures) Rules, 2014 provides that a person shall not be appointed as a debenture trustee, if he

(a)beneficially holds shares in the company;

(b)is a promoter, director or key managerial personnel or any other officer or an employee of the company or its holding, subsidiary or associate company;

(c)is beneficially entitled to moneys which are to be paid by the company otherwise than as remuneration payable to the debenture trustee;

(d)is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such holding company;

(e)has furnished any guarantee in respect of the principal debts secured by the debentures or interest thereon;

(f)has any pecuniary relationship with the company amounting to two per cent or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;

(g)is relative of any promoter or any person who is in the employment of the company as a director or key managerial personnel.

Accordingly, the explanations to the questions would be as under:

(i)A relative of whole-time director of the company (KMP) cannot be appointed as debenture trustee.

(ii)A shareholder who has no beneficial interest can be appointed as debenture trustee.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 3(a) (Syllabus 2017).

As per Section 71(6) of the Companies Act, 2013 a debenture trustee shall take steps to protect the interests of the debenture holders and redress their grievances in accordance with such rules as may be prescribed. Rule 18(3) of Companies (Share Capital and Debentures) Rules, 2014, prescribes the following duties which shall be adhered by every debenture trustee to protect interest of its debenture holders -

(a)satisfy himself that the letter of offer does not contain any matter which is inconsistent with the terms of the issue of debentures or with the trust deed;

(b)satisfy himself that the covenants in the trust deed are not prejudicial to the interest of the debenture holders;

(c)call for periodical status or performance reports from the company;

(d)communicate promptly to the debenture holders defaults, if any, with regard to payment of interest or redemption of debentures and action taken by the trustee therefore;

(e)appoint a nominee director on the Board of the company in the event of-

(i)two consecutive defaults in payment of interest to the debenture holders; or

(ii)default in creation of security for debentures; or

(iii)default in redemption of debentures.

(f)ensure that the company does not commit any breach of the terms of issue of debentures or covenants of the trust deed and take such reasonable steps as may be necessary to remedy any such breach;

(g)inform the debenture holders immediately of any breach of the terms of issue of debentures or covenants of the trust deed;

(h)ensure the implementation of the conditions regarding creation of security for the debentures, if any, and debenture redemption reserve;

(i)ensure that the assets of the company issuing debentures and of the guarantors, if any, are sufficient to discharge the interest and principal amount at all times and that such assets are free from any other encumbrances except those which are specifically agreed to by the debenture holders;

(j)do such acts as are necessary in the event the security becomes enforceable;

(k)call for reports on the utilization of funds raised by the issue of debentures-

(l)take steps to convene a meeting of the holders of debentures as and when such meeting is required to be held;

(m)ensure that the debentures have been converted or redeemed in accordance with the terms of the issue of debentures;

(n)perform such acts as are necessary for the protection of the interest of the debenture holders and do all other acts as are necessary in order to resolve the grievances of the debenture holders.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(d) (Old syllabus).

As per Section 73(2) of the Companies Act 2013, a company may, subject to the passing of a resolution in general meeting and subject to such rules as may be prescribed in consultation with the Reserve Bank of India, accept deposits from its members on such terms and conditions, including the provision of security, if any, or for the repayment of such deposits with interest, as may be agreed upon between the company and its members.

The relevant extract of Rule 3(3) of the Companies (Acceptance of Deposits) Rules read with notification dated 19th September, 2017 provide as under:

"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.

Provided further that the maximum limit in respect of deposits to be accepted from members shall not apply to the following classes of private companies, namely:-

(ii)a private company which fulfils all of the following conditions, namely: -

a)which is not an associate or a subsidiary company of any other company;

b)the borrowings of such a company from banks or financial institutions or anybody corporate is less than twice of its paid-up share capital or fifty crore rupees, whichever is less; and

c)such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under section 73:

Provided also that all the companies accepting deposits shall file the details of monies so accepted to the Registrar in Form DPT-3.

Analysis and Conclusion:

The aggregate of paid-up share capital ₹25 crore, Free Reserve ₹10 crore and Securities Premium Account ₹5 crore is worked out to be ₹40 crore. Hence, the company in normal way cannot accept deposits more than ₹40 crore (i.e. exceeding 100%).

However, as per the proviso, a private company is exempt from the above ceiling if all three conditions are satisfied. The company is not a holding or subsidiary or an associate company of any other company. So, this first condition (clause a) is fulfilled. The second condition under clause (b) is analysed as below:

(a)Twice of paid-up capital is ₹50 crore.

(b)Borrowing is ₹40 crore which is less than the limit of ₹50 crore

Hence, this condition is also satisfied.

The company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under section 73.

As all three conditions are satisfied Vanna Private Limited can accept the proposed deposits of ₹50 crore even if that exceeds the aggregate of paid-up share capital, free reserves and the securities premium.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 3(b) (Syllabus 2022).

The terms and conditions of deposits from members of the company pursuant to the provisions of Section 73(2) and relevant Rules are as below:

(a)Issuance of a circular to its members including therein a statement showing the financial position of the Company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the Company and such other particulars in Form DPT-1 and in such manner prescribed under Rule 4 of the Companies (Acceptance of Deposits) Rules 2014;

(b)Filing a copy of the circular along with such statement with the Registrar within 30 days before the date of issue of the circular.

(c)Depositing on or before the 30th day of April each year, such sum which shall not be less than 20% of the amount of deposits maturing during the following financial year and kept in a scheduled bank in a separate bank account to be called deposit repayment reserve account;

(d)Certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits and where a default has occurred, the company made good the default, and a period of five years had elapsed since the date of making good the default; and

(e)Providing security, if any for the due repayment of the amount of deposit or the interest thereon including the creation of such charge on the property or assets of the company.

It is to be noted that where a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as “unsecured deposits” and shall be quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits.

Green Roots Organics Private Limited may accept the deposits from its members in compliance with the above said provisions.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 2(a) (Syllabus 2022).

As per section 73 of the Companies Act, 2013 read with proviso to rule 3 of the Companies (Acceptances of Deposits) Rules, 2014, a company may, for the purpose of meeting any of its short-term requirements of funds, accept or renew such deposits for the repayment earlier than six months from the date of deposit or renewal, as the case may be, subject to the condition that-

a)Such deposits shall not exceed ten percent of aggregate of the paid-up share capital, free reserves and securities premium account of the company, and

b)Such deposits are repayable not earlier than three months from date of such deposit or renewal thereof.

BOD of ABC Ltd., is planning to invite deposits of Rs. 20 crore which is not more than Rs. 60 crore (10% of i.e., Rs. 600 crore) and repayment period is not earlier than three months from the date of such deposits. Proposal of BOD of ABC Ltd., does not contravene any provision of the Companies Act, 2023. BOD of ABC Ltd., may accept the deposits of Rs. 20 crore. The contentions of Company Secretary of ABC Ltd., is not correct. Accordingly, BOD of ABC Ltd. may be advised.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 2A(ii) (Syllabus 2017).

(i)According to Rule 3 of the Companies (Acceptance of Deposit) Rules, 2014, every eligible company shall obtain, at least once in a year, credit rating for deposits accepted by it and a copy of the rating shall be sent to the Registrar of Companies alongwith the return of deposits in Form DPT-3.

According to Rule 2(1)(e) of the Companies (Acceptance of Deposits) Rules, 2014 “eligible company” means a public company as referred to in sub-section (1) of section 76, having a net worth of not less than one hundred crore rupees of a turnover of not less than five hundred crore rupees and which has obtained the prior consent of the company in general meeting by means of a resolution and also filed the said resolution with the Registrar of Companies before making any invitation to the Public for acceptance of deposits. Credit rating is not mandatory for private companies and other non-eligible public companies which accept deposit only from its members.

(ii)The provision related to extent and manner of deposit insurance has been omitted according to Companies (Acceptance of Deposits) Amendment Rules, 2018 dated 05.07.2018. Therefore, the company can invite the deposits without entering into contract for deposit insurance.

(iii)As per rule 6 of the Companies (Acceptance of Deposits) Rules, 2014: Every company referred in Section 73(2) and eligible company as defined under Rule 2 of the Companies (Acceptance of Deposits) Rules, 2014, accepting deposits from its members shall provide security by creating charge on the assets of the company as referred to in Schedule III of the Act excluding its intangible assets.

(iv)As per rule 7 of the Companies (Acceptance of Deposits) Rules, 2014: Trustees for depositors can only be removed from office before the expiry of their term with the unanimous consent of all directors present at the meeting of Board of Directors. In case the company is required to have independent directors, at least one independent director shall be present in such meeting of the Board.

(v)Section 73(4) of the Companies Act, 2013 states that, where a company fails to repay the deposit or part thereof or any interest thereon, the depositor concerned may apply to the Tribunal for an order directing the company to pay the sum due or for any loss or damage incurred by him as a result of such non-payment and for such other orders as the Tribunal may deem fit.

In addition to filing a suit before NCLT for repayment of deposit with accumulated interest, hundred or more depositors or depositors holding at least five percent of the total outstanding deposit can initiate a class action suit under section 245 of the Act before the NCLT.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 1(b) (Syllabus 2017).

Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposits) Rules 2014, provides that any amount received from a person who, at the time of receipt of the amount, was a director of the company shall not be regarded as deposit, if the director from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others.

However, proviso to Section 73(1) read with Rule 1(3)(iii) of the Companies (Acceptance of Deposits) Rules 2014 excludes a housing finance company registered with National Housing Bank established under the National Housing Bank Act, 1987 from the provisions of Section 73 to 76A of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014.

So, the transaction of accepting money from the director recorded by Amal Housing Finance Ltd. in its book of account is not regarded as non-compliance of the provisions of the Companies Act 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(b) (Syllabus 2017).

(i)Rule 15 of the Companies (Acceptance of Deposits) Rules 2014 provides that where a company makes a repayment of deposits, on the request of the depositor, after the expiry of a period of 6 months from the date of such deposit but before the expiry of the period for which such deposit was accepted, the rate of interest payable on such deposit shall be reduced by 1% from the rate which the company would have paid had the deposit been accepted for the period for which such deposit had actually run and the company shall not pay interest at any rate higher than the rate so reduced.

Therefore, Tarun will get interest at 1% less than the rate applicable to one year deposit, as he is seeking repayment of his deposit before the expiry of its original tenure of three years.

(ii)As per Rule 3 of the Companies (Acceptance of Deposits) Rules 2014, no company referred to in Section 73(2) of the Companies Act, 2013 or any eligible company shall invite or accept or renew any deposit in any form, carrying a rate of interest or pay brokerage thereon at a rate exceeding the maximum rate of interest or brokerage prescribed by the Reserve Bank of India for acceptance of deposits by non-banking financial companies.

Further, Rule 15 of the Companies (Acceptance of Deposits) Rules 2014 also provides that nothing contained in rule 15 (relating to deduction of 1% interest) shall apply to the repayment of any deposit before the expiry of the period for which such deposit was accepted by the company, if such repayment is made solely for the purpose of complying with the provisions of rule 3 of the Companies (Acceptance of Deposits) Rules 2014.

Hence, as Fun Ltd. has violated the maximum rate of brokerage fixed by the RBI and thus the acceptance of deposit becomes invalid, the repayment of the deposit in this case shall be treated as being done solely for the purpose of complying with Rule 3 of the Companies (Acceptance of Deposits) Rules 2014 and therefore, they have to return the deposit without any deduction in the interest rate of amount.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 3(b) (Old syllabus).

Rule 1(3) of the Companies (Acceptance of Deposits) Rule, 2014 made under Section 73 and 76 of the Companies Act, 2013 provide that the Companies (Acceptance of Deposits) Rule, 2014 shall apply to a company other than -

(i)a banking company;

(ii)a non-banking financial company as defined in the Reserve Bank of India Act, 1934 registered with the Reserve Bank of India;

(iii)a housing finance company registered with the National Housing Bank established under the National Housing Bank Act, 1987; and

(iv)a company specified by the Central Government under the proviso to sub-section

(1)of section 73 of the Act.

Accordingly, the Companies (Acceptance of Deposits) Rules, 2014 is not applicable to banking company. Hence, a banking company can freely accept deposits.

A private company is allowed to accept deposits from its members subject to fulfillment of conditions provided under section 73(2)(a) to (e) of the Companies Act, 2013.

However, the Ministry of Corporate Affairs vide the notification dated 13th June 2017 provides that the section 73(2)(a) to (e) shall not apply to following classes of private companies,

(A)which accepts from its members monies not exceeding one hundred per cent of aggregate of the paid up share capital, free reserves and securities premium account; or

(B)which is a start-up, for five years from the date of its incorporation; or

(C)which fulfills all of the following conditions, namely:-

(a)which is not an associate or a subsidiary company of any other company;

(b)if the borrowings of such a company from banks or financial institutions or anybody corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and

(c)such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under this section:

The company referred to in clauses (A), (B) or (C) shall file the details of monies accepted to the Registrar in Form DPT-3.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(a) (Syllabus 2017).

Following are the provisions which are primarily aimed at protecting the interest of the depositors:

(i)Creation of Security – Every company accepting deposits is required to provide a security to the deposit holders by a charge on it’s assets referred to in schedule III of the Act excluding intangible assets for due repayment of the amount of deposit and interest thereon. The amount of deposits and the interest payable secured by a charge on the assets shall not exceed the market value of such assets as assessed by a registered valuer. The security for the deposit shall be created in favour of the trustee for depositors on specific moveable property and specific immovable property of the company wherever situated.

(ii)Trustee for Depositors – Every company accepting deposits from the public is required to appoint a trustee for depositors to safeguard the interest of the depositors. The trustee for depositors is required to protect the interest of the depositors. In this direction a number of duties have been entrusted to the trustees.

(iii)Section 76 A of the Companies Act,2013 states that Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 or section 76 or rules made there under or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made there under or such further time as may be allowed by the Tribunal under section 73,—

(a)the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees or twice the amount of deposit accepted by the company, whichever is lower but which may extend to ten crore rupees; and

(b)every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years and with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees

Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447 of the Companies Act, 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 5(a) (Old syllabus).

(i)According to Section 76(1) of Companies Act, 2013 read with Rule 3(4) the Companies (Acceptance of Deposits) Rules, 2014, an eligible company, as defined, can accept deposits only up to 10% of its paid-up share capital, free reserves and securities premium account from its members and up to 25% of its paid-up share capital, free reserves and securities premium account from the public. As the section has not made any separate provision for listed companies the prescribed limit is applicable to the listed companies if it is an eligible company. Hence, the statement that any listed company can accept deposit from the public up to its net worth is not correct.

(ii)According to proviso to section 73(2)(f) of the Companies Act, 2013, a company does not secure the deposits or secures such deposit partially, then, the deposits shall be termed as “unsecured deposits” and shall be so quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits. In such case, the circular inviting deposits in Form DPT-1 shall state that the deposits being accepted are unsecured deposits and that no charge will be created on the assets of the company. Hence, the statement that an eligible company can accept only secured deposits from the public is not correct.

(iii)According to section 73 read with rule 3 of the Companies (Acceptance of Deposits) Rules, 2014, a private Company can accept deposits from its member’s up-to 100% of aggregate of the paid-up share capital, free reserves and securities premium account. However, this limit is not applicable to a private company which is a start-up, for 10 years from the date of its incorporation. Hence, the statement is correct as this exemption is applicable to a private company which is a start-up, for ten years from the date of its incorporation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 1(a) (Syllabus 2017).

As per rule 3(5) of the Companies (Acceptance of Deposits) Rules, 2014, no Government Company eligible to accept deposits under section 76 of the Companies Act 2013, shall accept or renew any deposit, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal exceeds thirty-five per cent of the aggregate of its Paid-up share capital, free Reserves, and securities premium account of the company.

As per section 76(1) of the Companies Act, 2013 read with Rule 2(1)(e) of the Companies (Acceptance of Deposits) Rules, 2014- To become an ‘Eligible Company” the net worth of the company should not be less than Rs. 100 crore or the turnover should be at least Rs. 500 crore. Hence, eligible government company may accept deposits from public to the extent of specified limit.

In the given case scenario MNO Corporation Ltd, a government company does not fulfil any of the criteria of net worth or turnover, as it is less than the threshold limit. Thus, it is not an eligible company. Although the amount of proposed deposits of Rs. 4 crore is within the stipulated limit of 35% of the paid-up share capital, free reserves, and security premium the company cannot invite deposits of Rs. 4 crore from public as it is not an eligible company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 1(e) (Syllabus 2022).

(i)The statement given is not true. Only eligible public companies as referred in sub section

(1)of Section 76 of the Companies Act, 2013 read with The Companies (Acceptance of Deposits) Rules, 2014 having net worth of Rs. 100 crore or more or having an annual turnover of Rs. 500 crore or more and which has obtained prior consent of its members by a special resolution and filed the special resolution with the Registrar of Companies (ROC) at least 30 days before issue of circular to the depositor in Form DPT-1 can accept deposits from the public.

Thus, only passing a Board resolution for accepting deposits is not sufficient. Approval of members in general meeting by special resolution is mandatory for accepting deposits by the company.

(ii)The statement is not true. Appointment of independent deposit trustees is to safeguard the interests of the depositors. Appointment of deposit trustee is mandatory for companies accepting deposits from its members under section 73(2) of the Companies Act, 2013 (the Act) and also for eligible companies accepting deposits from the public under section 76(1) of the Act.

According to Rule 7(1) of Companies (Acceptance of Deposit) Rules, 2014, no company referred to in sub-section (2) of section 73 or any eligible company shall issue a circular or advertisement inviting secured deposits unless the company has appointed one or more trustees for depositors for creating security for the deposits.

Whereas According to Section 71(5) of the Act read with Rule 18(2) of Companies (Share Capital and debentures) Rules, 2014, appointment of debenture trustee for a company is mandatory for a company issuing debentures when the number of debenture holders exceeds five hundred.

Hence, the appointment of deposit trustee is mandatory for companies accepting deposits irrespective of the number of deposit holders.

(iii)As per Section 73 (5), the amount deposited in the deposit repayment reserve account shall not be utilized for any purpose other than for the purpose of repayment of deposits. Thus, the amount lying in Deposit Repayment Reserve cannot be used to issue bonus share.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 1(d) (Syllabus 2017).

(i)As per section 76(1) of the Companies Act, 2013 read with Rule 2(1)(e) of the Companies (Acceptance of Deposit) Rules, 2014, a public company having net worth of not less than Rs. 100 Crore or turnover of not less than Rs. 500 Crore (Eligible Company) and which has obtained the prior consent of the members in a general meeting by means of special resolution and has also filed the special resolution with the Registrar of Companies before making any invitation to the public for acceptance of deposits can obtain deposits from public. Eligible company, which is accepting deposits within the limit specified under clause (c) of sub-section (1) of section 180 (Borrowing Powers) may accept deposits by means of an ordinary resolution.

AB Ltd. is not an eligible company and hence, it cannot accept deposit from general public.

(ii)If AB Ltd is an eligible company and could not pass a special resolution, there are no other options available. Hence, it cannot accept deposits beyond the limits prescribed under section 180.

(iii)The forms to be submitted are Form MGT-14, Form DPT-1 (Circular in the form of advertisement inviting deposits), DPT-2 (Deposit Trust Deed), DPT-3 (Return of Deposits) and DPT-4 (Statement regarding deposits existing on the commencement of the Act), and CHG-1.

(iv)As per section 73(2)(c) of the Companies Act, 2013, on or before the thirtieth day of April each year, the company to deposit such sum which shall not be less than twenty percent of the amount of its deposits maturing during the following financial year and keeping it in a separate bank account called Deposit Repayment Reserve Account.

(v)Yes, as per rule 12 of the Companies (Acceptance of Deposits) Rules, 2014, every company shall, on the acceptance of a deposit, furnish to the depositor or his agent a receipt for the amount received by the company, within a period of twenty one days from the date of receipt of money or realisation of cheque.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 3(c) (Syllabus 2017).

According to rule 14 of the Companies (Acceptance of deposits) Rules, 2014, every company accepting deposits is required to maintain at its registered office one or more separate registers for deposits accepted or renewed in which prescribed particulars shall be entered separately in the case of each depositor.

The provisions of the Companies Act, 2013 do not contain any stipulation governing the inspection of the Register for deposits and therefore it can be said that in absence of any enabling provision, this register is not open for inspection by members and company may refuse to open it for inspection.

Accordingly, the secretarial officer of the company has not defaulted under any provision of the Companies Act, 2013 by refusing an inspection of Register of deposits to Vinod, member of the Company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 1(c) (Syllabus 2022).

As per Rule 2(1)(c)(xii) of the Companies (Acceptance of Deposits) Rules, 2014, deposit does not include any amount received in the course of, or for the purposes of the business of the company:

•as advance, accounted for in any manner whatsoever, received in connection with consideration for an immovable property under an agreement or arrangement, provided that such advance is adjusted against such property in accordance with the terms of agreement or arrangement.

•as advance for supply of capital goods received under long term projects except monies received in connection with consideration for an immovable property under an agreement or arrangements.

•as an advance for the supply of goods or provision of services accounted for in any manner whatsoever, provided that such advance is appropriated against supply of goods or provision of services within a period of 365 days from the date of acceptance of such advance. In case, of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of 365 days shall not apply.

However, if the amount received above becomes refundable (with or without interest) due to the reasons that the company accepting the money does not have necessary permission or approval, wherever required, to deal in the goods or properties or services for which money is taken, then the amount received shall be deemed to be deposit under these rules. Further, whether interest is charged or not is immaterial.

Thus, advance of Rs.95000/- taken from customers by real estate company Skill Properties Pvt. Ltd. shall not be considered as deposit, as long as it meets any one of the criteria specified in Rule 2(1)(c)(xii) of the Deposit Rules, depending upon the purpose for which the amount was paid by the Customer and based on such purpose, if the amount is not adjusted in the manner specified in the above provisions, then it will be treated as deposit.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(i) (Old syllabus).

As per Rule 3(4) of the Companies (Acceptance of Deposits) Rules, 2014, no eligible company can accept or renew-

(a)any deposit from its members, if the amount of such deposit together with the amount of deposits outstanding as on the date of acceptance or renewal of such deposits from members exceeds 10% of the aggregate of the paid-up share capital, free reserves and securities premium account of the company;

(b)any other deposit, if the amount of such deposit together with the amount of such other deposits, other than the deposit referred to in clause (a), outstanding on the date of acceptance or renewal exceeds 25% of aggregate of the paid-up share capital, free reserves and securities premium account of the company.

In the instant case, as the net-worth of the company is exceeding ₹100 crore, so the company is assumed to be an eligible company. Further, aggregate of the paid-up share capital, free reserves and securities premium account is ₹220 crores and the company has not accepted any deposits as of now.

Accordingly, from the members, the eligible company can accept upto 10% of ₹220 crores i.e. ₹22 crores. From the public it can accept upto 25% of ₹220 crores i.e.₹55 crores.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(iv) (Syllabus 2017).

According to Rule 2(1) (xii) (e) of the Companies (Acceptance of Deposits) Rules, 2014. The term 'deposit' does not include any advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement, if the period for providing such services does not exceed the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less.

In the instant case, the amount of ₹2 lakh received on March 31, 2015 as advance towards consideration for providing future services in the form of a warranty, is still lying with the company until March 31, 2019 and the period prevalent as per common business practice, for providing such service is 3 years, which has expired.

Accordingly, this amount has come within the ambit of the term 'deposit’. Hence, the comments of the auditor are justified and the Vice-President (Finance) is advised to immediately refund the advance amount along with the due interest thereon to Apurva.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3(a) (Syllabus 2017).

As per Rule 15 of the Companies (Acceptance of Deposits) Rules, 2014, when a company makes a repayment of deposits, on the request of the depositor, after the expiry of a period of 6 months from the date of such deposit but before the expiry of the period for which such deposit was accepted, the rate of interest payable on such deposit shall be reduced by 1% from the rate which the company would have paid had the deposit been accepted for the period for which such deposit had actually run and the company shall not pay interest at any rate higher than the rate so reduced.

However, this rule shall not apply to the repayment of any deposit before the expiry of the period for which such deposit was accepted by the company, if such repayment is made solely for the purpose of—

(a)complying with the provisions of Rule 3 of the Companies (Acceptance of Deposits) Rules, 2014; or

(b)providing war risk or other related benefits to the personnel of the naval, military or air forces or to their families, on an application made by the associations or societies formed by such personnel, during the period of emergency declared under article 352 of the Constitution.

In view of the above provision, D can get repayment of deposit after one year of deposit with reduction of 1% i.e., 7% per annum from ABC Ltd.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3A(i) (Old syllabus).

According to Rule 14 of the Companies (Acceptance of deposits) Rules, 2014, every company accepting deposits is required to, maintain at its registered office one or more separate registers for deposits accepted or renewed, in which prescribed particulars shall be entered separately in the case of each depositor.

The provisions of the Companies Act, 2013 do not contain any provisions governing the inspection of the Register for deposits and therefore it can be said that in absence of any enabling provision, this register is not open for inspection by members and company may refuse to open it for inspection.

Accordingly, the Company Secretary has not defaulted under any provision of the Companies Act, 2013 by refusing an inspection of Register of Deposits to Gopal Kabra, member of the Company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3A(iv) (Old syllabus).

The disqualifications for debenture trustees as referred in Rule 18 of the Companies (Share Capital & Debentures) Rules, 2014, are as under:

(i)beneficially holds shares in the company;

(ii)is a promoter, director or key managerial personnel or any other officer or an employee of the company or its holding, subsidiary or associate company;

(iii)is beneficially entitled to moneys which are to be paid by the company otherwise than as remuneration payable to the debenture trustee;

(iv)is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such holding company;

(v)has furnished any guarantee in respect of the principal debts secured by the debentures or interest thereon;

(vi)has any pecuniary relationship with the company amounting to 2% or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;

(vii)is relative of any promoter or any person who is in the employment of the company, as a director, or as a key managerial personnel.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2(e) (Syllabus 2017).

Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 provides for inclusions and exclusions under the term "deposit" for the purpose of compliance of the Companies (Acceptance of Deposits) Rules, 2014.

(i)Sub-rule (vii) provides that the subscription money received against issue of securities is not a deposit provided in case of non-allotment of securities, the money is refunded to the subscriber within 60 days from the receipt of money. Further, adjustment of the money for any other purpose shall not be considered as a refund. Hence the amount paid by Jeevan shall be considered as a deposit.

(ii)Sub-rule (viii) provides that money received from a director as loan is not deposit provided the money is not given by the director out of any loan taken by him from others. In this case, since the amount advanced by the Director to the company was given out of funds borrowed by the Director from Indian Bank, it does not fall under the exclusion and hence it is a case of Deposit.

(iii)Sub-rule (xii)(e) excludes from deposit, any advance received for warranty and maintenance, if the warranty period does not exceed the period prevalent as per common business practice or 5 years whichever is less. In this case, as it is a life- time warranty, it does not fall under the exclusion and hence it is a deposit. However, if the life of machinery is less than 5 years then the amount shall not be treated as Deposit.

(iv)Sub-rule (xi) excludes from deposit any non-interest-bearing amount received and held in trust. In this case, company has received the amount in trust for a housing society to be formed for the benefit of the employees and the money is not interest bearing. Hence it is not a deposit.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2A(iv) (Old syllabus).

A Debenture, in which no time is fixed for the company to pay back the money, is an irredeemable debenture.

According to Rule 18(1)(a) Companies (Share Capital and Debentures) Rules, 2014 an issue of secured debenture may be made for a period of redemption not exceeding ten years from the date of issue. In case of certain companies such redemption period may exceed ten years but not exceed thirty years.

After the commencement of the Companies Act, 2013, no company either public or private can issue perpetual or irredeemable debentures.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 1(c) (Syllabus 2017).