Inter corporate deposits as per companies act 1956 pdf

X x x x extracts x x x x b extracts may be taken therefrom and copies thereof may be required, by any member of the company to the same extent, in the same manner, and on payment of the same fees as in the case of the register of members of the company. Power of company law board to call annual general meeting. While the ca 1956 permitted public companies to accept deposits only in compliance with the companies acceptance of deposits rules, 1975, it did not include elaborate. Unless delegated to any committee or a principal officer of the company. Apply to the jurisdictional registrar of companies to ascertain the availability of name in form 1a along with mentioned fee. The word loan must be constructed as dealing with loans not amounting to deposits durga prasad mandelia v. The act, has lesser sections as the companies will be governed more through the rules which are yet to be prescribed. Procedure, 1973, namely, whether the inter corporate deposit loan, i. The government of india has recently notified companies act, 20 ca. Section 372a of the companies act legal service india. The new act provides that intercorporate investments not to be made through more than two layers of investment companies.

After going through this lesson, you should be able to understand the procedures relating to intercorporate loans, investments, guarantees. Mca amends the acceptance of deposit rules section 73 of the companies act, 20 the act, read with companies acceptance of deposit rules, 2014 the rules, inter alia, provides provisions for acceptance of deposits by a company from its members. As per companies acceptance of deposit rules, 2014 applicable from 1st april 2014, all such companies now have to refund such unsecured loan deposit immediately. Inter company deposits suffer from following disadvantages. Against immagainst immproperty property if adjusted as per agreement if adjusted as per agreement sssecurity deposit for performance of contract for. The dilemma of mandatory interest on inter corporate loans new companies act has made some changes in the rules that govern inter corporate loans. This lending would be an uncollateralized basis and hence a higher rate of. Companies act, 1956 bare acts law library advocatekhoj.

Formation of companies under companies act, 1956 select in order of preference a few suitable names, not less than four, ensuring that the name does not resemble the name of an existing company. The deposit rules under the new act brought that restriction, purportedly owing to deposit scams in the eastern region. Company formation under the companies act of 1956 mba. There is not provision under section 370 of the 1956 act which prescribes that a loan includes a deposit for the purpose of that section pennwalt india ltd. Therefore, moneys given by the company to the other bodies corporate is a loan within the meaning of section. Loan, guarantee, security, investment made vinod kothari. Finally, some exemptions to private companies indiacorplaw. It may be a loan or deposit and generally termed as inter corporate deposits, yet they are not deposits under the companies act 20. Majority of private limited companies accept unsecured loans from directors relatives or from its members as allowed under the provisions of companies act, 1956. Under the companies act, 20 inter corporate loans and investment plays a very vital role for the growth of industries as there is result in the flow of funds for the group companies or other companies who are in the need of funds. Under ca 1956, loans made to or security provided or guarantee given in connection with loan. Main provisions of companies act 1956 presented by. Deposits have been defined under the companies act, 20 20 act to include. Inter corporate deposits are not covered in the definition of deposits, hence company can.

Frequently asked questions on acceptance of deposits under section58a. Loan agreement with security agreements law library. The dilemma of mandatory interest on inter corporate loans. Since this lending is totally unsecured, the interest rates are comparatively higher. The objective of exempting the intercorporate deposits from the purview of nonbanking financial companies acceptance of public deposits reserve bank directions, 1998 is that the corporate bodies whether a shareholder or a nonshareholder should be able to appraise the loan proposals and ensure the safety of the funds lent. Section 372a inter corporate loaninvestmentguarantee. The companies act 20 has 464 sections and 7 schedules. Corporates having surplus funds lend to another corporate in need of funds. An act to consolidate and amend the law relating to companies and certain other associations. Section 372 a of the companies act, 1956 deals with the inter corporate loan and investment.

Both the companie s have common director s and common shareholders. Limited company is prohibited from inviting or accepting deposits from persons other then its members, directors or their relatives. Therefore, moneys given by the company to the other bodies corporate is a loan within the meaning of section 370 of the companies act must be negatived. The same was given as inter corporate deposit referred as icd for shor t hereinafter to the flagshi p compan y y ltd. Icd an introduction an inter corporate deposit icd is an unsecured borrowing by corporates and fis from other corporate entities registered under the companies act 1956. Default in acceptance or refund of deposits to be cognizable. For giving up free hand to the industries, a drastic.

An inter corporate deposit icd is an unsecured borrowing by corporates from other corporate entities registered under the companies act, 20 or the erstwhile companies act, 1956. The companies act, 1956 existing act contains 658 sections and xv schedules. Section 186 of companies act, 20 corporate law reporter. Intermediaries registered us 12 of sebi act shall not take intercorporate loans and deposits in excess of the. The definition of deposit as provided under the ca 20 and the rules specifically indicate that loans obtained by a company shall also be considered to be a deposit.

The notes below are prepared based on the provisions of the act. All the four transactions are frequently taken place in any company and henceforth the section becomes more important and therefore it requires to special heed by virtue of strict penal provisions and. Companies act the companies act is a successor to the indian companies act of 19 and is a consolidation of many successive amendment acts, statutory rules and principles laid down in decisions of. Group 1 aarti singh, azhar hussain, jyoti nawlani, nemchand meena, renuka sharma companies act. Section 372a of the companies act, 1956 the act deals with intercorporate loan, investment, guarantee and securities in connection with loan. Exchange board, shall can take intercorporate loans or deposits exceeding. It also gives a detailed procedure for inter corporate loans investmentgiving guaranteeproviding security. Any amount received by a company from another company is not a deposit as per the provisions of companies acceptance of deposit rules, 2014. Acceptance of deposit section 73 to 76 simplified taxguru.

Intercorporate deposit cannot be termed as loan for. The biggest advantage of intercorporate deposits is that the transaction is free from bureaucratic and legal hassles. When such an association of persons is registered under the companies act, it becomes an artificial person with perpetual succession and common seal. In this connection, it is hereby clarified that registers maintained by companies pursuant to subsection 5 of section 372a of companies act, 1956 may continue as per requirements under these provisions and the new format prescribed vide form mbp2 shall be used for particulars entered in such registers on and from 1. Inter corporate loans and investments law times journal. Bharat gears limited was incorporated as a public limited company under the provisions of the companies act, 1956 as bharat gears limited pursuant to a certificate of incorporation dated december 23, 1971 issued by the registrar of companies, delhi. An inter corporate deposit icd is an unsecured loan taken by companies from other cash rich corporates and nbfcs non banking finance companies registered under the companies act 1956. The companies act, 20 act has come up with a change in the concept of loan and investment by company. The annual interest rate on call deposits is around 10%. However, the fis which are structured as companies under the companies act 1956, are eligible to issue icds as permissible under the act. Deposits under the companies act, 20 corporatecommercial. Borrowing cost from company laws perspective vinod.

So, whenever one applying his mind for exempting inter corporate deposit from section 58a, at the same time one should check compliance with section 372a. For giving up free hand to the industries, a drastic change was made in 1998 which resulted into the merging of section 370 and section 372 into a new section 372a which enables more flexibility and dispensing. The new act provides that intercorporate investments not to be made through more than. There is no such provision under section 372a of erstwhile companies act, 1956. Companies act, 20 in relation to loan to directors etc. An inter corporate deposit icd is an unsecured borrowing by corporates and fis from other corporate entities registered under the companies act 1956. Inter corporate deposits are exempt from the definition. All the four transactions are frequently taken place in any company and henceforth the section becomes more important and therefore it requires to special heed by virtue of strict penal provisions and because of no much space to play.

The new act provides that inter corporate investments not to be made through more than two layers of investment companies. The ministry of corporate affairs mca, through a notification issued in june 2015, granted an exemption to private companies. Be it enacted by parliament in the sixth year of the republic of india as follows 1. A company cannot lend more than 10 per cent of its net worth to a single company and cannot lend beyond 30 per cent of its net worth in total. Order of the high court of bombay dated september, 2019 relaxing inter corporate deposits from provisions of maharashtra protection of interest of depositors in financial establishments act, 1999 mpid act facts of the case a listed company is registered under the provisions of the companies act, 1956.