2.4       Query

Applicability of Companies (Acceptance of Deposits) Rules, where

a deposit is given by a director who was a shareholder

As per rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, deposit received by the company from a person who, at the time of deposit, was a director of the public limited company, is to be treated as exempted deposit. The querist sought the opinion of the Expert Advisory Committee that where a company receives deposit from a person who was a director as well as a shareholder of the public limited company at the time of giving deposit, whether the deposit so received will be treated as exempted deposit or not and that if it is treated as exempted deposit whether the company can pay interest more than 15% p.a. or not?

                                                                        Opinion                                        July 10, 1987

1.The Committee notes that Rule 2(b)(ix) of the Companies (Acceptance of Deposits) Rules, 1975, provides that the term ‘deposit’ does not include.

            “Any amount received from a person who at the time of receipt of the amount was a director of the company or any amount received from its shareholders, by a private company, or by a private company who has become a public company under Section 43A of the Act and continues to include in its Articles of Association provisions relating to the matters specified in clause (iii) of sub-section (1) of Section 3 of the Act.

            Provided that the director or shareholders, as the case may be, from whom the 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 from others.

            Explanation: For the removal of doubts, it is hereby declared that any deposit received or renewed by a company before the commencement of the Companies (Acceptance of Deposits) Amendment Rules, 1978 shall continue to be governed by the rules applicable at the time of such deposit or renewal as the case may be.”

2. The Committee notes that the above Rule only stipulates that the deposit made by a director is exempted. The Committee is thus of the opinion that a deposit made by a director who was also a shareholder of the company at the time of making the deposit, is exempted, subject to the other requirements of the Companies (Acceptance of Deposits) Rules, 1975 as stated above, e.g., the deposits are not out of borrowings. Accordingly, there would not apply the limitation as regards the rate of interest.

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