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📚 Learn/ / Acceptance of Deposits by Companies
Microlesson · 5-min read

Definition of Deposit and Exclusions under Rule 2(1)(c)

# Definition of 'Deposit' and Exclusions

## What is a Deposit?

The term 'deposit' under Section 2(31) refers to any money received by a company as a deposit, loan, or in any other form, except amounts excluded by rules made in consultation with the Reserve Bank of India (RBI).

## Key Features of a Deposit

FeatureExplanation
Inclusive definitionCovers deposits, loans, or any other form of money received
Time-boundRepayment must be done within a specified period
SecurityCan be secured (only on tangible assets) or unsecured
ExclusionsSpecific amounts excluded under Rule 2(1)(c)
Private companiesCan accept deposits only from members
Public companiesCan accept from members AND public, subject to conditions
Joint holdingDeposits can be held jointly by up to 3 persons
NominationA depositor can nominate a person at any time
InterestEvery deposit must be repaid with interest
Premature repaymentCompanies may allow premature repayment

## Exclusions from 'Deposit' under Rule 2(1)(c)

The following amounts are NOT treated as deposits:

### 1. Government Sources

  • Amounts from Central or State Government
  • Amounts guaranteed by CG/SG
  • Amounts from local authorities
  • Amounts from statutory authorities (Act of Parliament/State Legislature)

### 2. Foreign Sources (subject to FEMA, 1999)

  • Foreign Governments, foreign/international banks
  • Multilateral financial institutions
  • Foreign financial institutions, export credit agencies, foreign collaborators, foreign bodies corporate, foreign citizens, foreign authorities

### 3. Loans from Banks

  • Banking companies, SBI & its subsidiaries
  • Notified banking institutions, Co-operative banks

### 4. Loans from Public Financial Institutions (PFIs)

  • PFIs, Regional Financial Institutions, Insurance companies, Scheduled banks

### 5. Commercial Papers

  • Amounts against commercial papers issued per RBI guidelines

### 6. Inter-Company Loans

  • Amounts received by a company from any other company

### 7. Share Application Money

  • Money received for securities, pending allotment
  • ⚠️ If not allotted within 60 days and not refunded within 15 days thereafter → treated as deposit

### 8. Loan from Director / Relative of Director (Private Company)

  • Amount received from a person who was a director at the time of receipt, or a relative of director of a private company
  • Conditions:
  • Director must give a written declaration that the money is NOT from borrowed funds/loans/deposits
  • Company must disclose details in the Board's Report

### 9. Bonds and Debentures

  • Secured debentures/bonds (charge on assets, excluding intangibles)
  • Convertible debentures (converted within 10 years)
  • Non-convertible securities listed on a recognised stock exchange

### 10. Security Deposit from Employees

  • Non-interest-bearing security deposit ≤ annual salary of the employee

### 11. Trust Money

  • Any non-interest-bearing amount received or held in trust

### 12. Advances for Commercial Transactions

TypeTime Limit / Condition
Advance for goods/servicesAdjust within 365 days (no limit if subject to legal proceedings)
Advance for immovable propertyAdjust as per agreement
Security deposit for contract performanceNo time limit
Advance for long-term projects (capital goods)No time limit
Advance for AMC contractsUp to 5 years or standard practice (whichever shorter)
Sectoral regulator-approved advancesAs per regulator
Advance for subscriptions (publications)Adjust against delivery

⚠️ Refund Rule: If the amount becomes refundable (due to lack of approval) and is not refunded within 15 days, it becomes a deemed deposit with interest payable.

### 13. Loan from Promoter

  • Unsecured loans from promoters/relatives, brought in as a stipulation of lending institutions
  • Exempt until the FI loan is repaid

### 14. Nidhi Company — Amount accepted u/s 406

### 15. Chit Fund Companies — Under Chit Fund Act, 1982

### 16. Collective Investment Schemes / Mutual Funds — As per SEBI regulations

### 17. Start-ups

  • ₹25 lakh or more as convertible note in single tranche
  • Convertible into equity OR repayable within 10 years

### 18. REITs/InvITs/AIFs/VCFs/Mutual Funds — Under SEBI regulations

## Definition of Depositor

A depositor is:

  • Any member of a company who has made a deposit u/s 73(2), OR
  • Any person who has made a deposit with a public company u/s 76

Thus, a depositor may be a member or a non-member.

Worked example

### Example 1

Example 1: A private company receives ₹10 lakh from Mr. X, the brother of its director. Is this a deposit?

Solution: No — amounts received from a relative of a director of a private company are excluded from the definition of deposit under Rule 2(1)(c), provided: (a) the director gives a written declaration that the funds are not borrowed, and (b) the company discloses details in the Board's Report.

### Example 2

Example 2: A company received share application money on 1st April. It allotted shares on 15th June (75 days later). Is this a deposit?

Solution: Yes — since allotment was not done within 60 days, the money should have been refunded by the 75th day (15 days after the 60-day window). Failure to refund makes it a deemed deposit, attracting interest liability.

### Example 3

Example 3: XYZ Ltd received ₹50 lakh from Mr. Y for sale of a machinery on 1st January 2025, but delivery is delayed. By 1st January 2026, the goods are still not delivered. Status?

Solution: Advance for goods must be adjusted within 365 days. Since the period has expired without adjustment, the amount becomes a deemed deposit (unless covered by ongoing legal proceedings, in which case the 365-day limit does not apply).

### Example 4

Example 4: A start-up receives ₹30 lakh as a convertible note in a single tranche. Is this a deposit?

Solution: No — amounts of ₹25 lakh or more received as a convertible note in a single tranche from a person are excluded, provided the note is convertible into equity or repayable within 10 years.

⚠️ Common exam mistakes

  • Treating loans from directors of public companies as exempt — exemption for 'relatives of directors' applies only to private companies.
  • Missing the requirement of a written declaration from the director that the money is not from borrowed funds.
  • Confusing the 60-day allotment window (share application) with the 15-day refund window.
  • Treating interest-bearing trust money as exempt — only non-interest-bearing trust money is excluded.
  • Forgetting that advances for AMC contracts have a 5-year cap (or shorter standard practice).
  • Applying the exemption for promoter loans permanently — it lasts only until the FI loan is repaid.
Bare-Act text Section 2(31) read with Rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014 · Companies Act, 2013 · click to expand
'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.
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