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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
CA Jayant Thakur, 27th April 2014 3
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
CA Jayant Thakur, 27th April 2014 4
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
CA Jayant Thakur, 27th April 2014 6
Acceptance of DepositsNew provisions – acceptance of
deposits◦Broadly similar in structure
Definition of deposits Restrictions – limits, credit rating,
interest, etc.
◦Several changes, new provisions
CA Jayant Thakur, 27th April 2014 7
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
CA Jayant Thakur, 27th April 2014 8
Acceptance of DepositsAdvances for supply of
goods/services/capital goods◦Sahara◦CISs◦Gold Investment Schemes
Interest/returns/”bonus”
CA Jayant Thakur, 27th April 2014 9
Acceptance of DepositsExisting deposits
◦Transitional period◦Old overdue deposits◦Existing deposits becoming overdue◦Existing loans that are not deposits?◦Consequences non-repayment
CA Jayant Thakur, 27th April 2014 10
Acceptance of DepositsPunishment for non-repayment/
fraudulent acceptance/ fraudulent use/mis-statements, etc.
Credit RatingInsuranceSecured Deposits
CA Jayant Thakur, 27th April 2014 11
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.
CA Jayant Thakur, 27th April 2014 12
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
CA Jayant Thakur, 27th April 2014 13
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.
CA Jayant Thakur, 27th April 2014 14
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
CA Jayant Thakur, 27th April 2014 15
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?
CA Jayant Thakur, 27th April 2014 16
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)
CA Jayant Thakur, 27th April 2014 17
Restrictions on inter-corporate and other loans/investmentsUnanimous Board resolution
◦At a meeting◦Dissenting directors?
Interest rate on loans
CA Jayant Thakur, 27th April 2014 18
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
CA Jayant Thakur, 27th April 2014 19
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?
CA Jayant Thakur, 27th April 2014 20
Serious Fraud Investigation OfficeExisting provisionsSFIO
◦Multi-disciplinary body◦Investigation vs. prosecution
When can act?Bar on other agencies What is “serious”?
CA Jayant Thakur, 27th April 2014 21
Serious Fraud Investigation OfficeNew definition/consequences of
fraudSection 447
◦Deemed Section 447 provisionsWho are covered?
◦Company◦Directors/Officers◦Auditors , etc.
CA Jayant Thakur, 27th April 2014 22
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
CA Jayant Thakur, 27th April 2014 23
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
CA Jayant Thakur, 27th April 2014 25
Serious Fraud Investigation OfficePowers
◦To investigate/collect information◦To obtain documents◦To stop other investigations◦Power of arrest◦Power of prosecution
CA Jayant Thakur, 27th April 2014 26
Thank You!