Companies Act Acceptance of Deposits Quiz
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Questions and Answers

Which of the following amounts received by a public company is NOT considered a deposit?

  • An amount received from a statutory authority (correct)
  • Any amount received from a foreign collaborator
  • Funds received from a local authority (correct)
  • An amount received from a private corporation

Which of the following entities can NOT provide funds that would be classified as a deposit for a public company?

  • A domestic private bank
  • A state government
  • A foreign government-owned institution (correct)
  • A foreign bank (correct)

Which of the following is TRUE regarding amounts that are considered deposits by public companies?

  • Amounts from statutory authorities are excluded from being deposits. (correct)
  • Amounts received from the Central Government are deposits.
  • Funds from local authorities are classified as deposits.
  • Funds from foreign citizens are considered deposits.

What must be true for a public company to receive amounts as deposits?

<p>The receipt of funds should comply with the Foreign Exchange Management Act. (A)</p> Signup and view all the answers

Which statement correctly identifies a funding source that is NOT categorized as a deposit?

<p>Funding from a multilateral financial institution (A), Financial aid from a foreign government (B)</p> Signup and view all the answers

Which of the following sources can a company receive loans or financial assistance from?

<p>Insurance companies (A)</p> Signup and view all the answers

What is a requirement when a director or their relative provides a loan to the company?

<p>A declaration must be provided confirming the funds are not borrowed. (D)</p> Signup and view all the answers

Which type of instrument can a company issue to receive funds, according to the guidelines issued by the Reserve Bank of India?

<p>Commercial paper (A)</p> Signup and view all the answers

What type of charge must bonds or debentures have when raised by a company?

<p>A first charge or pari passu charge on certain assets. (B)</p> Signup and view all the answers

Which of the following is NOT included as a source for receiving loans or financial assistance?

<p>Individual investors (C)</p> Signup and view all the answers

What must be disclosed in the Board's report when funds are received from a director or relative?

<p>Specific details of the loan accepted and the declaration provided. (D)</p> Signup and view all the answers

Which forms of financial instruments can a company issue for raising capital?

<p>Bonds or debentures convertible into shares. (C)</p> Signup and view all the answers

What happens if the bonds or debentures are secured by company assets?

<p>The amount raised must not exceed the market value of the assets. (D)</p> Signup and view all the answers

What type of amount is classified under sub-clause (ixa)?

<p>Funds raised through non-convertible debentures not constituting a charge on company assets (C)</p> Signup and view all the answers

In what scenario does the amount received from an employee not qualify as a deposit under sub-clause (x)?

<p>When the amount exceeds the employee's annual salary (C)</p> Signup and view all the answers

What is a condition for the exemption of loans provided by promoters under the stipulated guidelines?

<p>The loan should be brought in as per the stipulation of lending institutions. (C)</p> Signup and view all the answers

Which of the following defines a 'start-up company' according to the guidelines?

<p>Any private company incorporated and recognized under specific notifications. (A)</p> Signup and view all the answers

What is required for an advance to be exempt from the deposit classification under sub-clause (xii)?

<p>It must be accounted for within 365 days against supplied goods or services (B)</p> Signup and view all the answers

What is a convertible note in the context of start-up financing?

<p>An instrument that represents an initial loan with a conversion feature. (D)</p> Signup and view all the answers

Which of the following statements accurately describes sub-clause (xi)?

<p>It refers to non-interest-bearing amounts received and held in trust (B)</p> Signup and view all the answers

What is the minimum amount required for a start-up to receive by way of a convertible note in a single tranche?

<p>Twenty-five lakh rupees or more. (D)</p> Signup and view all the answers

What condition must be fulfilled regarding the advance for it to not be classified as a deposit?

<p>It must be resolved if under legal proceedings (A)</p> Signup and view all the answers

What is the maximum amount an employee can deposit as a non-interest bearing security deposit without it being counted as a deposit under sub-clause (x)?

<p>₹6,00,000 (D)</p> Signup and view all the answers

Under what condition can a promoter's loan be exempt from the standard regulations?

<p>If it is provided by the promoters or their relatives. (C)</p> Signup and view all the answers

Which type of company can accept amounts under the Chit Fund Act, 1982?

<p>Any Nidhi company in compliance with appropriate rules. (A)</p> Signup and view all the answers

In the context of non-convertible debentures, what is a requirement for their classification under sub-clause (ixa)?

<p>They should not constitute a charge on company assets (C)</p> Signup and view all the answers

What happens to the exemption of the promoter’s loan once the loans from financial institutions are repaid?

<p>The exemption is no longer available after repayment. (D)</p> Signup and view all the answers

Which of the following does not apply to the nature of the amount under sub-clause (xii)?

<p>Earned interest before appropriation (C)</p> Signup and view all the answers

Which of the following statements is true regarding the amount received under a collective investment scheme?

<p>It must comply with regulations formulated by the Securities and Exchange Board of India. (C)</p> Signup and view all the answers

What is the maximum allowed rate of interest or brokerage for deposits set by non-banking financial companies?

<p>It cannot exceed the rate prescribed by the Reserve Bank of India. (A)</p> Signup and view all the answers

Who can be paid brokerage for soliciting deposits on behalf of the company?

<p>Only those authorized in writing by the company. (C)</p> Signup and view all the answers

What must an intending depositor declare in the application form for making a deposit?

<p>The deposit is not made from any borrowed money. (D)</p> Signup and view all the answers

How many names can be included in a joint deposit according to the guidelines?

<p>Up to three names. (D)</p> Signup and view all the answers

In a joint deposit with the clause 'Either or Survivor', who is entitled to the repayment on maturity?

<p>Any one of the depositors or the survivor. (A)</p> Signup and view all the answers

What is the purpose of nominating a person for a deposit?

<p>To vest the deposit in them in the event of the original depositor's death. (A)</p> Signup and view all the answers

What should happen if brokerage is paid to a person not authorized by the company?

<p>It is deemed a violation of deposit rules. (B)</p> Signup and view all the answers

Which of the following clauses would mean that the repayment on maturity is made to A, B, and C together?

<p>'Jointly' (D)</p> Signup and view all the answers

What information is NOT required to be stated on a deposit receipt?

<p>The depositor's bank account number (D)</p> Signup and view all the answers

What is the latest date a company must file the audited Return of Deposits DPT-3 for the previous financial year?

<p>30th June (D)</p> Signup and view all the answers

What happens if a company fails to repay deposits on maturity?

<p>The company pays a penal interest rate of eighteen percent per annum (D)</p> Signup and view all the answers

Which of the following actions is NOT allowed regarding deposit terms and conditions after deposits are accepted?

<p>Keeping the terms unchanged (D)</p> Signup and view all the answers

In terms of disclosure, what must a public company include in its financial statements?

<p>Money received from directors (C)</p> Signup and view all the answers

What is the purpose of Form DPT-3 as mentioned in the company regulations?

<p>To include particulars of deposits or not considered deposits (B)</p> Signup and view all the answers

Which of the following is a requirement for a deposit receipt to be valid?

<p>It must be signed by an officer authorized by the Board (C)</p> Signup and view all the answers

What provisions should be referred to for premature repayment of deposits?

<p>Policies on deposit acceptance from the public (D)</p> Signup and view all the answers

Flashcards

Public company deposits

Public companies can take deposits from members and the general public, but only under certain rules / criteria.

Exempt deposits

Certain amounts aren't categorized as deposits from the public.

Government funds

Amounts received from central, state governments, or any source guaranteed by them are excluded.

Foreign funding

Amounts from foreign governments, banks, or institutions aren't considered deposits.

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Funds from local authorities

Amounts from local authorities and statutory authorities aren't considered deposits.

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Loan from Banking Company

Money received by a company as a loan from a traditional bank, State Bank of India or its subsidiary banks, or a notified banking institution.

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Loan from Non-Bank

Money received by a company as a loan from institutions like Public Financial Institutions, regional financial institutions, or insurance companies.

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Inter Company Deposit (ICD)

Money deposited by one company into another company, often for short-term investment purposes.

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Commercial Paper

Money raised by a company through short-term debt instruments like commercial paper, issued according to RBI guidelines.

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Subscription to Securities

Money received by a company from investors who are applying to buy shares, but the money is held until allotment of the shares.

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Director's Deposit

Money received by a company directly from a director or a relative of the director, but the source of the funds must be disclosed and confirmed.

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Secured Bond/Debenture

Money raised by a company through bonds or debentures that are secured by assets listed in Schedule III of the Companies Act, 2013.

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Compulsorily Convertible Bonds

Money raised through bonds that must be converted into company shares within 10 years.

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Unsecured loan by promoters

A loan provided by a company's promoters to fulfill a lending institution's requirement, repaid when the institution's loan is repaid.

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Promoter loan conditions

The loan must be brought due to a lending institution's stipulation, provided by the promoters or their relatives, and repaid before any exemption applies.

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Nidhi company funds

Any amount accepted by a Nidhi company according to its specific rules under section 406 of the Companies Act.

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Chit fund subscription

An amount received by a company as a subscription for a chit under the Chit Fund Act, 1982.

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Collective investment scheme

Amounts received by a company under a collective investment scheme, complying with Securities and Exchange Board of India regulations.

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Start-up convertible note

A single tranche of ₹25 lakhs or more received by a recognized start-up by way of a convertible note, repayable within 10 years.

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Convertible note definition

An instrument that initially acts as a debt, but converts into shares upon certain events, as per agreed terms.

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Start-up company definition

A private company incorporated under the Companies Act, 2013 or 1956 and recognized as a start-up by the Department for Promotion of Industry and Internal Trade.

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Non-convertible Debenture (NCD)

A type of bond issued by a company that doesn't convert into shares. It's not backed by the company's assets and is traded on a stock exchange.

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Employee Security Deposit (Exceeding Salary)

A non-interest bearing deposit an employee gives to their employer as security, exceeding their annual salary. It's considered a deposit.

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Employee Security Deposit (Not Exceeding Salary)

A non-interest bearing deposit an employee gives to their employer as security, not exceeding their annual salary. It's not considered a deposit.

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Non-Interest Bearing Trust Account

Money held for a specific purpose in a trust account, not earning any interest. It's not considered a deposit.

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Advance for Goods or Services (Within 365 Days)

Money received as an advance payment for goods or services, used within a year, it's not considered a deposit.

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Advance for Goods or Services (Legal Proceedings)

Money received as an advance payment for goods or services, subject to a legal dispute. The 365-day limit doesn't apply.

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Exempt Deposit: Non-convertible Debenture Listing

A non-convertible debenture (NCD) not backed by company assets and listed on a recognized stock exchange.

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Exempt Deposit: Non-Interest Bearing Trust Account

Money held in a trust account earning no interest, dedicated to a particular purpose.

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Interest Rate Limit

Companies can accept deposits at any rate, but it cannot exceed the maximum limit set by the Reserve Bank of India (RBI) for non-banking financial companies (NBFCs).

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Brokerage Payment Rules

A company can only pay brokerage to someone authorized in writing to solicit deposits on its behalf and who actually procured the deposits.

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Deposit Application

Companies must have a specific application form for accepting deposits, and depositors must declare that the deposit is not from borrowed money.

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Joint Deposits

Companies can accept deposits in the names of up to three individuals, with various clauses like 'Jointly', 'Either or Survivor', 'First named or Survivor', and 'Anyone or Survivor' impacting how the deposit is repaid.

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Jointly Clause

With the 'Jointly' clause, the deposit is repaid to all named individuals together or their survivors.

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Either or Survivor Clause

The 'Either or Survivor' clause allows any of the named individuals or the survivor to claim the deposit.

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First Named or Survivor Clause

The deposit is paid to the first named individual or the survivor with the 'First Named or Survivor' clause.

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Nomination

Depositors can nominate someone to receive their deposit upon their death.

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Deposit Receipt

A document issued by a company within 21 days of receiving a deposit, stating the deposit details (date, depositor's information, amount, interest rate, maturity date).

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Register of Deposits

A record maintained by companies, documenting all deposits received from the public, similar to a bank's deposit register.

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Premature Repayment of Deposits

When a depositor withdraws their deposit before its maturity date, potentially incurring penalties or forfeiting interest.

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Return of Deposits Filing

A yearly statement prepared by a company, audited by a certified auditor, and filed with the Registrar of Companies, detailing all deposits received.

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No Right to Alter Terms

Companies cannot change deposit terms after accepting deposits, if the changes are unfavorable to depositors.

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Disclosure of Director Deposits

Public companies must disclose in their financial statements any money received from their directors, while private companies must disclose money from directors and their relatives.

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Penal Rate of Interest

A higher interest rate charged by companies when they fail to repay deposits on time.

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Secured vs. Unsecured Deposits

Secured deposits are backed by assets, making them safer for depositors, while unsecured deposits have no specific collateral.

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Study Notes

Acceptance of Deposits by Companies

  • Companies can accept deposits from members and the public.
  • These requirements and restrictions are designed to ensure that companies adhere to legal standards, protect investors, and maintain financial stability.
  • 'Eligible companies' refer to those entities that meet specific criteria set forth by regulatory authorities, allowing them to solicit deposits from the public as well as from their own members. These criteria often include having a certain level of financial stability, maintaining a minimum net worth, and fulfilling disclosure and compliance requirements. By being classified as eligible, these companies can access a broader pool of capital from depositors, which can be utilized for various business purposes, such as funding operational expenses, investing in growth opportunities, and enhancing liquidity. The distinction between eligible and non-eligible companies serves to protect the interests of depositors by ensuring that only financially sound and transparent companies are permitted to accept public deposits.' can accept deposits from the public in addition to members.
  • There are penalties for violating the provisions regarding acceptance.
  • 'Deposit' includes a company receiving money through deposit, loan, or other forms.
  • Repayment of a deposit is time-bound.
  • Deposits can be secured or unsecured.
  • Deposits don't include certain categories of amounts, as prescribed.

Chapter Overview

  • Chapter V covers sections 73 to 76A and the Companies (Acceptance of Deposits) Rules, 2014.
  • Accepting deposits from members and the public is a significant source of finance for corporations.
  • Regulations are needed to safeguard the interests of those providing deposits.
  • The Companies Act, 2013 (and the 2014 Rules) govern the acceptance and renewal of company deposits.

Features

  • The definition of 'deposit' is inclusive, covering deposits, loans, and other forms of receipt.
  • Repayment of deposits is time-bound.
  • Deposits can be secured or unsecured.
  • Deposits don't include certain types of amounts (as per the rules).
  • Deposits can be accepted in joint names up to three people.
  • A depositor can nominate a person.
  • Every accepted deposit will be repaid with interest.
  • Companies can repay deposits early, if permitted.
  • Private companies can only accept deposits from their members.
  • Public companies can accept deposits from members and the public, if they are eligible, satisfying certain criteria.

Amounts Not Considered as Deposit

  • Amounts received from the Central or State Government, or any other source with governmental guarantee.
  • Amounts received from local authorities or statutory authorities under an Act of Parliament or a State Legislature.
  • Amounts received from foreign governments, banks, multilateral financial institutions, foreign government-owned institutions, foreign export credit agencies, foreign collaborators, foreign bodies corporate and foreign citizens.
  • Amounts received from foreign authorities or persons living outside India.
  • Amounts received as a loan/facility from banks, notified banking institutions, corresponding new banks, and cooperative banks.
  • Amounts received as financial assistance from public or regional financial institutions, or insurance companies.
  • Funds received through commercial papers or other instruments issued by the Reserve Bank of India.
  • Inter-company deposits (ICD).
  • Amounts received for subscription to securities (pending allotment), if only for the allotted securities.

Exceptions/Exemptions

  • Banking companies and non-banking financial companies are exempt from the 'deposit rules' (as stated in the Reserve Bank of India Act, 1934).
  • Housing finance companies registered with National Housing Bank are also exempt.
  • Further exceptions can be provided by the Central Government in consultation with the Reserve Bank of India.

Prohibitive Provisions and Exempted Companies

  • Companies cannot accept or renew deposits from the public unless they follow the prescribed procedures.
  • Certain companies, including banking companies and non-banking financial companies, are exempt from the rules covering the acceptance of deposits from the public.

Provisions Regarding Acceptance of Deposits from Members

  • A company needs a resolution from a general meeting to accept deposits.
  • Companies need to issue a circular to members, including a statement of financial position, credit rating, and deposit details.
  • A certificate from the company's statutory auditor confirming no deposit defaults is required.
  • The circular's validity depends on the financial year or the AGM date.

Provisions Regarding Acceptance of Deposits from Public by Eligible Companies

  • Only 'eligible companies' can accept deposits from the public (in addition to members).
  • Eligible companies need a minimum net worth and/or turnover.
  • A special resolution from the general meeting is required.
  • The resolution must be filed with the registrar.
  • The company should obtain a credit rating that meets standards specified (and renewed annually).

Punishment for Contravention of Section 73 or Section 76

  • Companies violating the provisions, regarding the acceptance, or repayment of deposits, face penalties.
  • Penalties include fines (minimum ₹1 crore, or twice the deposit amount, whichever is lower, up to ₹10 crore) and potential imprisonment for officers (minimum ₹25 lakh, up to ₹2 crore).

Repayment of Deposits Accepted Before Commencement of the Companies Act, 2013

  • Companies must file a statement of all outstanding deposits and repayment plans within three months.
  • These deposits must be repaid within three years of the Act's commencement or the deposit's stated expiry, whichever is earlier.
  • Further, there are additional requirements for the renewal of outstanding deposits

Power of Central Government

  • The Central Government can decide whether particular company rules apply concerning deposits.

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Acceptance of Deposits by Companies PDF

Description

Test your knowledge on the acceptance of deposits by companies as outlined in Chapter V of the Companies Act, 2013. This quiz covers essential requirements, restrictions, and penalties associated with accepting deposits from the public and members. Understand the regulations and the importance of safeguarding interests in company finance.

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