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The Corporate Affairs Ministry (MCA) has somewhat softened the ‘deposits’ blow on private companies.
It has now clarified that amounts received prior to April 1, 2014 by such entities from their members, directors or their relatives will not be considered as “deposits” under the new company law.
The main question before the MCA was whether private companies that accepted money prior to April 1, 2014 from their members, directors or their relatives would be governed by the ‘deposits’ regime under the new company law or not. The MCA has now said that such amounts would not be treated as ‘deposits’ under the new company law.
This would mean that private companies – for the amount collected from directors, members before April 1, 2014 – would not be required to conform to the stringent conditions specified for deposits’ acceptance under the new company law enacted in 2013.
The conditions in the new company law include obtaining credit rating for such deposits besides repayment of the money within a year – by March 31, 2015 – if the compliance conditions are not met.
V Balaji, Partner, Deloitte, Haskins & Sells, said this MCA clarification was “timely” and would help private companies better manage their working capital.
“For funds accepted from directors before April 1, 2014, there is no need for the private company to repay it within a year. Also, there will be no need for any credit rating as stipulated under the new company law,” he said. Many private companies were not taking funds from members, directors or their relatives during 2014-15 on account of the stringent norms in the new company law, he added.
Sai Venkateshwaran, India Head – Accounting Advisory Services, KPMG in India, said this MCA move is more of a transitional relief to those private companies, who have thrived by raising funds from friends and relatives, at a time when they are unable to access public funds or borrowings.
Lalit Kumar, Partner, J Sagar Associates, a law firm, said that the circular provides for a limited relief for private companies.
“The larger issue which also needs clarification is about the ambiguous meaning of ‘deposits’. The new Act requires companies to repay unpaid deposits by March 31, 2015; but companies are unclear about whether anything which was not a deposit under the old Act but is a deposit under the new Act needs to be paid by March 31 2015?”, Kumar said.
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