Loans/Investments, Acceptance of Deposits & SFIO - under Companies Act, 2013 CA Jayant Thakur...

Loans/Investments, Loans/Investments, Acceptance of Deposits & Acceptance of Deposits &

SFIOSFIO- under Companies Act, - under Companies Act,

20132013

CA Jayant [email protected]

27th April 2014, WIRC, ICAI

Outline Provisions covered:-

◦Acceptance of Deposits◦Loans and investments by companies◦Serious Frauds Investigation Office –

new provisionsSummary of existing provisionsAnalysis of new

provisions/comparison with earlier provisions

CA Jayant Thakur, 27th April 2014 2

General points Transitional issues

◦At times, relief given, but generally not Wider coverage

◦Public/private/OPCsAbsolute prohibition/requirements

◦No exemption by taking Central Government/shareholders approval

More serious punishment◦Mandatory imprisonment/no

compounding


Acceptance of DepositsExisting provisions

◦Principal provisions Section 58A & related provisions Acceptance of deposits Rules

◦NBFCs, non-NBFCs not covered by Section 58A and those covered by Section 58A


Acceptance of DepositsSalient features:-

◦Wide definition of “deposits”◦Numerous exclusions◦Regulation of acceptance of deposits

Acceptance from:- Public Shareholders

Limits on deposits Interest/brokerage Returns/credit rating, etc.

◦ CA Jayant Thakur, 27th April 2014 5

Acceptance of DepositsConsequences of:-

◦Acceptance of deposits in violation of law

◦Non-repayment of deposits


Acceptance of DepositsNew provisions – acceptance of

deposits◦Broadly similar in structure

Definition of deposits Restrictions – limits, credit rating,

interest, etc.

◦Several changes, new provisions


Acceptance of DepositsWide definition of deposits

◦Deposits from directors◦Deposits from shareholders◦Inter corporate deposits◦Deposits from non-residents◦Loans from banks, etc.◦Share application monies◦Debentures◦Security deposits from employees


Acceptance of DepositsAdvances for supply of

goods/services/capital goods◦Sahara◦CISs◦Gold Investment Schemes

Interest/returns/”bonus”


Acceptance of DepositsExisting deposits

◦Transitional period◦Old overdue deposits◦Existing deposits becoming overdue◦Existing loans that are not deposits?◦Consequences non-repayment


Acceptance of DepositsPunishment for non-repayment/

fraudulent acceptance/ fraudulent use/mis-statements, etc.

Credit RatingInsuranceSecured Deposits


Loans and Investments Existing provision – Section 295

◦Loans to directors and certain entities in which directors are interested

Existing provision – Section 372A◦Restricts inter corporate loans and

investments◦Permits upto a certain percentage◦Thereafter, a special resolution.

Exemption to private companies/NBFCs etc.


Loans to directors/specified persons(Section 185)Loans to directors

◦And certain specified entities Applies to all type of companiesAbsolute prohibitionLoans, guarantees, securitiesHolding/subsidiary companies


Loans to directors/specified personsPunishment

◦Rs. 5-25 lakhs fine for the company◦Rs. 5-25 lakhs fine or six months

imprisonment for officers in default.


Restrictions on inter-corporate and other loans/investments(Section 186)Who are covered?

◦Public/Private/OPC?What is covered?

◦Loans/guarantees/securities/ “investments”

What are restrictions?◦Without Board Meeting◦Without approval of lenders◦Without approval of shareholders


Restrictions on inter-corporate and other loans/investmentsAbsolute prohibitions

◦Layers of investment companies What are investment companies? Investment subsidiaries What does “layer” mean? How many are allowed? Which are exempted?


Restrictions on inter-corporate and other loans/investmentsLoans, etc. to whom are covered?

◦“other” body corporates◦“Persons”

Limits beyond which shareholders’ approval required – higher of:-◦60% of paid up capital+free reserves◦100% of free reserves◦Definition of free reserves – 2(43)


Restrictions on inter-corporate and other loans/investmentsUnanimous Board resolution

◦At a meeting◦Dissenting directors?

Interest rate on loans


Restrictions on inter-corporate and other loans/investmentsExemption for:-

◦Holding/subsidiary transactions◦Holding/WOS transactions◦NBFCs◦Companies engaged in business of

providing financeSEBI registered intermediariesRights issues


Restrictions on inter-corporate and other loans/investmentsPunishment/consequences of

violations◦25000- 5 lakhs for the Company

25000-1 lakh for officers in default and imprisonment upto 2 years

Non-compoundable?

◦Size of company/size of loans/investments?


Serious Fraud Investigation OfficeExisting provisionsSFIO

◦Multi-disciplinary body◦Investigation vs. prosecution

When can act?Bar on other agencies What is “serious”?


Serious Fraud Investigation OfficeNew definition/consequences of

fraudSection 447

◦Deemed Section 447 provisionsWho are covered?

◦Company◦Directors/Officers◦Auditors , etc.


Serious Fraud Investigation OfficeFraud on whom?

◦Company◦Shareholders◦Creditors ◦Or any other person

What fraud?◦Act/omission/concealment, etc.◦Whether or not resulting in gain/loss


Serious Fraud Investigation OfficeAmount of fraud?

◦Materiality◦Relation with punishment?

Other frauds◦False statement/omissions in

returns, reports, certificates, prospectus, etc.

◦Several other acts/omissions deemed as Section 447 frauds

Giving of false evidenceCA Jayant Thakur, 27th April 2014 24

Serious Fraud Investigation OfficePunishment

◦Imprisonment - six months to seven years In case of fraud involving public interest –

3-7 years

◦Fine – 100-300% of amount of fraud


Serious Fraud Investigation OfficePowers

◦To investigate/collect information◦To obtain documents◦To stop other investigations◦Power of arrest◦Power of prosecution


Thank You!

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