Difference between Loans and Deposits under the Companies Act, 2013

Loans:

As per Companies Act, 2013, the following types of money received by a company are termed as loans:

1.  Money received from the Central Government or a State Government or Local Authority or Statutory Authority, or any amount received from any other source whose repayment is guaranteed by the Central Government or a State Government.

2.  Money received from foreign Governments, foreign or international banks, multilateral financial institutions (including, but not limited to, International Finance Corporation, Asian Development Bank, Commonwealth Development Corporation and International Bank for Industrial and Financial Reconstruction), foreign Governments owned development financial institutions, foreign export credit agencies, foreign collaborators, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of Foreign Exchange Management Act, 1999.

3.  Money received as a loan or facility from any banking company.

4.  Money received as a loan or financial assistance from Public Financial Institutions notified by the Central Government.

5.  Money received against issue of commercial paper or any other instruments issued in accordance with the guidelines of Reserve Bank of India.

6.  Money received by a company from any other company;

7.  Money received and held towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, so long as such amount is appropriated only against the amount due on allotment of the securities.

8.  Money raised by the issue of bonds or debentures or bonds or debentures compulsorily convertible into shares of the company within five years.

9.  Money received from an employee of the company not exceeding his annual salary.

10. Non-interest bearing money received or held in trust.

11. Money received in the course of doing business.

12. Money held as advance for the supply of goods or provision of services.

13. Money brought in by the promoters of the company by way of unsecured loan.

14. Money accepted by a Nidhi company.

Deposits:

Deposit has been defined under Section 2(31) of the Companies Act, 2013 further expanded under the Deposit Rules, 2014.

As per Section 2(31),  “deposit” includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

Accordingly, Rule 2(1)(c) of Companies (Acceptance of Deposit) Rules, 2014, excludes the following amount received by a Company from the ambit of Deposit and shall not be considered as deposits –

i. any amount received from the Central Government or a State Government or local authority or statutory authority, or any amount Whose repayment is guaranteed by the Central Government or a State Government;

ii. any amount received from foreign Governments, foreign or international banks, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India;

iii.Loans or facility from banks;

iv. Loans from Public Financial Institutions/ Insurance Companies;=

v. any amount received against issue of commercial paper or any other instruments;

vi. any amount received by a company from any other company;

vii. Any amount received through Public offer. However, if securities not allotted within 60 days and refund not made within 15 days then such amount will be treated as Deposit;

viii. Any amount received from the director of the company and in case of private company also from the relative of the director of the company subject to the condition that the amount has been given from own’s fund and not from borrowings.

ix. Any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge, compulsorily convertible within 10 years;

x. Any amount raised by issue of Unsecured Non-convertible debentures; 

xi. Non-interest-bearing security deposit from employee of the company under the contract of employment to the extent not exceeding his annual salary;

xii. Any non-interest bearing amount received and held in trust;

xiii. Any amount received in the course of business –

(a) As advance for supply of good or services provided that such goods or services are supplied within 365 days of the receipt of advance;

(b) As advance in connection with consideration for an immovable property provided such advance is adjusted against such property in accordance with the terms of the agreement;

(c) As security deposit for the performance of the contract;

(d) As advance under long term projects for supply of capital goods;

Provided that if the amount received under (a), (b) & (d) becomes refundable due to lack of necessary permission or approval to deal in the concerned goods or services, then the amount received shall be deemed as deposit on the expiry of 15 days from the date they become due for refund. 

(e) As advance towards consideration for future warranty or maintenance contract; 

(f) As advance received which is allowed by any sectoral regulator;

(g) As advance for subscription towards publication;

xiv. Any amount of unsecured loan brought in by the promoters subject to the fulfilment of the following conditions:

(a) the loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance;

(b) the loan is provided by the promoters themselves or by their relatives or by both; and

(c) the exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter;

xv. Any amount accepted by a Nidhi Company;

xvi. Any amount received by way of subscription in respect of a chit under the Chit Fund Act, 1982;

xvii. Any amount received by the company under any collective investment scheme;

xviii. An amount of 25 lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person;

xix. Any amount received by a company from registered Alternate Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts and Mutual Funds.

Difference between Loans and Deposits:

Hence, deposit is taken at the instance and for the benefit of the person depositing the money. Also, in deposit, the deposit is payable on demand of the depositor. In case of a loan, loan is taken at the instance or for the benefit of the person requesting the money. Loan are payable only when the obligation to repay the amount arises, as per the loan agreement.

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