Companies (Acceptance of Deposits) Second Amendment Rules, 2017

MCA has brought about an amendment to the Companies (Acceptance of Deposits) Rules vide its Second Amendment Rules of 2017 on 19th September, 2017.

Rule 3(3) of the Rules stated that

“No company referred to in sub-section (2) of section 73 shall accept or renew any deposit from its members, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds [thirty five per cent] of the aggregate of the [Paid-up share capital, free Reserves and securities premium account] of the company.

[“Provided that 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 such manner as may be specified.”]

It is the proviso to Rule 3(3) that is being amended.

The new proviso allows specified IFSC public company and private company to accept monies from its members not exceeding 100% of the aggregate of paid-up share capital, free reserves and securities premium account and such company shall file details of monies so accepted to the Registrar in form DPT-3.

Explanation to the proviso states that specified IFSC public company is an unlisted public company licensed to operate either by RBI, SEBI, IRDA in an approved international financial services centre located in an approved multi services Special Economic Zone.

Another proviso has been added to this sub-rule viz.

that the maximum limit in respect of deposits to be accepted shall not apply to

1. private company which is a start-up for 5 years from the date of its incorporation, or
2. private company which fulfills all the following conditions, viz.

a) which is not an associate or subsidiary of any other company (i.e. a purely private company)

b) the borrowings of such company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or Rs.50 crores, whichever is less (i.e. if the paid up share capital is Rs.1 lakh, then the borrowings should be less than Rs.2 lakhs or Rs.50 crores, whichever is less. So obviously the borrowings in this case should be less than Rs.2 lakhs)

c) company has not defaulted in repayment of such borrowings.

All the three conditions above has to be satisfied in respect of this second clause of this second proviso.

So basically the relaxation in acceptance of deposits is in favour of IFSC public company and start up private company. In respect of a purely private company the relaxations are dependent on its paid up share capital.

The companies accepting deposits should report the same in form DPT-3.

The amendment is available here

Restriction on no. of layers

MCA has come out with a new rule with effect from 20th September, 2017 which is called the Companies (Restrictions on Number of Layers), Rules, 2017.

As per this Rule, no company shall have more than two layers of subsidiaries. Exemptions are wholly owned subsidiary or subsidiaries. Companies can however acquire more than two layers of subsidiaries outside India as per the laws of such jurisdiction.

Banking company, NBFC, Insurance company and government company is exempted from the provisions of these Rules.

Rule 3 says that the provisions of this rule shall not be in derogation to proviso to section 186(1) of the Act. That proviso says, in the first part that the company can acquire any other company incorporated outside India, if such foreign company has investment subsidiaries beyond more than two layers as per the laws of such country. The (b) portion of the proviso says that a subsidiary company can have investment subsidiary for the purpose of meeting any requirement under any law or rule or regulation thereto. The (b) proviso pertains to the Indian jurisdiction. So basically investment subsidiaries are outside the ambit of this Rule if they are the 2nd layer of subsidiaries.

Rule 4 specifies that where a company has subsidiaries in excess of the limits specified in these Rules, as on the date the Rules come into force, then it shall, within 150 days of these Rules, file with the ROC a form i.e. CRL-1, disclosing the details specified therein in the said Form. It shall not after the commencement of these Rules, have any additional layer of subsidiaries more than what it had on the date of commencement of these Rules. In case one or more layers are reduced after these Rules come into force, the Company shall keep the layers of subsidiaries at that reduced level or at the maximum level specified in these Rules. For eg. if a company has 4 layers of subsidiaries at the commencement date and subsequently one layer has dropped off, the company cannot increase the layer from 3 to 4 merely because it had 4 layers at the commencement date. It should be kept at 3 levels only.

Rule 5 is the penalty clause whereby the fine is Rs.10,000 for the company and every officer in default and if it is a continuing default, then further fine of Rs.1000 per day during the period the contravention continues.

So basically the Rule allows the companies to retain their level of subsidiaries, but not add to it. As and when the companies delete one or more of their subsidiaries, then they should retain it at that level or upto two layers and not increase it further.

The Rules is available at the MCA site at here 

The Wizard of Lies

The Wizard of Lies - a brilliant movie about the Bernie Madoff Ponzi scheme fraud in 2008, played brilliantly by Robert de Niro. All characters in the film have played solid roles especially the elder son Mark who so tragically commits suicide in 2010. The film does not dwell too much on the victims of the crime or the machinations of the crime, but more on the family and the angst that they had to suffer because of the crime committed by Bernie. Neither his wife Ruth nor his two sons knew anything about the crime, yet they were hounded by the media and would have probably lost all their assets as well. Michelle Pfeiffer as the wife has essayed a brilliant role. That's the central theme of the movie - effect of a crime on the family of the crime perpetrator. Wonder why there has been no movie on the innumerable Indian financial frauds and scams so far.