Chapter X
LENDING, INVESTMENTS, BORROWINGS, EXTERNAL
COMMERCIAL BORROWINGS
A. Lending/Intercorporate Loans
[Topic 260‑261]
B. Investments‑Intercorporate
Investments [Topic 262‑267]
C. Borrowing‑Company Deposits
[Topic 268‑276]
D. External Commercial Borrowings
[Topic 277‑281]
(Topic 260 to Topic 261)
Topic 260
1. Note that before making any loan to any person or firm
falling under the category of clauses (a) to (e) of Section 295(1), you have to
obtain the approval' of the Central Government if your company is a public
company or its subsidiary.
2. If such loan is to be given for house building, then follow.
the guidelines issued by the Central Government, for availability of such loan
which allow companies to make the house building loans to their managing
director/whole‑time directors without prior approval of the Central
Government on seek terms and conditions as are applicable to its
officers/employers.
3. Keep in mind that no approval for the grant of loan would be
given by the Government for the purchase of furniture.
4. Make the application on a plain paper preferably on the
letter head of the company giving full details regarding the loan and also
regarding the party to whom the loan will be allowed and the purpose for such
loan. There is no prescribed form.
5. Period of loan, rate of interest, security, whether the loan
is in accordance with any rules of the company framed in this behalf, repayment
capacity/manner of repayment, etc., should be mentioned in the aforesaid
application.
6. Address the applicationE to the Secretary, Department of
Company Affairs, Ministry of Law, Justice and Company Affairs, Shastri Bhavan,
5th Floor, 'A' Wing, Dr. Rajendra Prasad Road, New Delhi‑ 110001.
7. Along
with the applicationc, annex the following documents:
(i) A certified true copy of the Memorandum and Articles of the
Association of your company;
(ii) Certified true copies of audited balance‑sheets and
profit and loss accounts for the last three years immediately preceding;
(iii) Names
and addresses of the persons to whom loans will be made;
(iv) The original copy of the receipted treasury challan or demand
draft evidencing the payment of the requisite fee.
8. If the application fee is paid by way of treasury challan
pay the requisite fee as prescribed under the Companies (Fees on Applications)
Rules, 1999, in cash specified into any of the specified branches of the
Punjab National Bank, through a challan to be obtained and prepared in
triplicate for credit.
9. The description of the Head of account of the treasury
challan should be as prescribed under Rule 22(2) of the Companies (Central
Government's) General Rules and Forms, 1956 and as amended vide GSR
251(E), dated 21‑6‑1996 (w.e.f 21‑6‑1996). For
account head and code please see Rule 22(2) in Appendix 1.
10. If the applicationE fee is paid by way of demand draft, then
draw the demand draft in favour of "Pay and Accounts Officer, Department
of Company Affairs, New Delhi", and payable at any bank located in New
Delhi, and the said demand draft should be attached to the application.
11. Deliver a copy of the application along with a copy of all
the documents annexed to it to the Registrar of Companies concerned.
12. On receipt of the approval, hold a Board Meeting after giving
notice to all the directors of the company as per Section 286 and grant the
loan by passing a resolution$ and deliver a copy of the approval to the
Registrar of Companies.
13. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1,000/‑ [Section 286(2)]
14. Note
that no such approval will be needed if such loan is made by:
(a) private
companies; unless they are subsidiaries of public companies;
(b) holding
companies to its subsidiaries;
(c) banking
companies.
15. If your company is a Government Company whose entire paid‑up
share capital is held by:
(a) the
Central Government and its nominees; or
(b) a State Government and its nominees, in so far as such loan,
guarantee, security is provided to any other Government Company whose entire
paid‑up share capital is held as above, then the Central Government's approval
is not required but you should only take the approval of the Ministry or
Department of the Central Government which is administratively incharge of your
company or the State Government, as the case may be.
16. Note further that as per the Citizen's Charter of the
Department of Company Affairs Schedule I, Serial No. 13, the application made
to the Central Government will be processed within 30 days. [No. 5/25/99‑CL‑V;
Press Note No. 9/99 dated 9‑8‑1999.]
17. Note that if your company's paid‑up share capital is
less than Rs. 50 lakhs but is equal to or more than Rs. 10 lakhs, your company
is required to obtain a Compliance Certificate from a secretary in whole‑time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company has advanced loan amounting to the actual sum
advanced to its directors and/or persons or firms or companies referred in
section 295 of the Act after complying with the provisions of the Act and has
obtained all necessary approval of the Central Government as may be prescribed
under the various provisions of the Act as per paragraphs 8 and 17 of the Form
of Compliance Certificate appended to the Companies (Compliance Certificate)
Rules, 2001.8 [Section 383A(1) proviso]
Topic 261
DO YOU WISH TO BORROW FUNDS FOR YOUR
COMPANY?
1. In the case of a public company, the power to borrow cannot
be exercised before the date of issue of certificate of commencement of
business. [Section 149]
2. In case the lender is a company, see that in the circumstances
mentioned in Topic 251 the lending company observes the formalities mentioned
therein.
3. Convene a Board Meeting after giving notice to all the
directors of the company as per Section 286 and place the proposal in your
Board Meeting and get it approved by way of resolution passed in the meeting.
4. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1,000/‑[Section 286(2)]
5. The aforesaid power can also be delegated to others if such
borrowing is otherwise than in accordance with Section 292.
6. If such borrowing exceeds the paid‑up share capital
and free reserves of your company, then get it approved in the General Meeting.
[Section 293(1)(d)]
7. File the above resolution in Form No. 23t within thirty days
of its passing with the Registrar [Section 192(4)(ee)(i)] after paying
the requisite fee 2 prescribed under Schedule X to the Companies Act, 1956 and
in accordance with Rule 22(1) of Companies General Rules and Forms, 1956,
either in cash or treasury challan. [Rule 22(1)]
8. Please also keep in mind that if default is made in
complying with the aforesaid requirement of filing, the company and every
officer of the company who is in default will be punishable with fine of upto
Rs. 200/‑ for every day during which the default continues. [Section 192(5)]
9. Forward three copies of the notice issued to the
shareholders and a copy of the proceedings of the General Meeting to the Stock
Exchange, if your company is listed on a Stock Exchange. [Clause 31(c) and
(d) of the Standard Listing Agreement]
10. Where the borrowing is to be secured against a charge, comply
with the provisions of Part V of the Act regarding "registration of
charges" accordingly.
11. In case of a public company or its subsidiary, if charges
amount to otherwise disposing of any of the company's undertakings or any
substantial portion of any of them proceed, vide Topic 247.
12. In case of a public company, check up whether provisions of sub‑sections (4) to (7) of Section 81 are applicable; if so, comply with them.
13. Comply with formalities mentioned in Topic 268 for
accepting and renewing of deposits and borrowings.
14. Further keep in mind that if your company's paid‑up
share capital is less than Rs. 50 lakhs but is equal to or more than Rs. 10
lakhs, your company is required to obtain a Compliance Certificate from a
secretary in whole‑time practice to be filed with the Registrar of
Companies mentioning therein inter alia that the amount borrowed by your
company from directors, members, public, financial institutions, banks and
others during the financial year ending on a particular date is within the
borrowing limits of the company and that necessary resolution as per section
293(1)(d) has been passed in duly convened general meeting as per paragraph 24
of the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001. [Section 383A(1) proviso]
B.
Investments‑Intercorporate Investments
(Topic 262 to Topic 267)
Topic 262
1. See whether
any loan is to be made out of the funds of your company or any guarantee is to
be given or any security is to be provided in connection with such loan or any
investments are to be made in shares by the following:
(a) a banking
company, or an insurance company, or a housing finance company in the ordinary
course of its business, or a company established with the sole object of
financing industrial enterprises, or of providing infrastructural facilities;
(b) a company
whose principle business is the acquisition of shares stock, debentures or
other securities;
(c) a private company, unless it is a
subsidiary of a public company; [Section 372A(8)(a)]
2. Further see
whether any investment is being made in shares alloted in pursuance of clause
(a) of sub‑section (1) of section 81. [Section 372A(8)(b)]
3. Further
verify whether any loan is being made by a holding company to its wholly owned
subsidiary or any guarantee is being given or any security is being provided by
a holding company in respect of loan made to its wholly owned subsidiary or any
acquisition is being made by a holding company by way of subscription,
purchases or otherwise, the securities of its wholly owned subsidiary. [Section
372A(8) (c), (d) and (e)]
4. If
aforesaid is the case then your company is exempted from the provisions of
section 372A.
5. If
aforesaid is not the case then follow the steps given below.
6. Decide whether the loan is to be given to any body corporate
out of the funds of your company or guarantee is to be given or security is to
be provided in connection with such loan made by any other person to, or to any
other person by any body corporate and whether investment is to be made in the
securities of any other body corporate by way of acquisition subscription,
purchase or otherwise not exceeding 60% of your company's share capital and free
reserves or less than 100% of your company's free reserves, whichever is more.
[Section 372A (1)]
7. In the aforesaid case, convene a Board Meeting after giving
notice to all the directors of your company as per section 286 and place the
proposal in it and get it approved by passing a resolution with the consent of
all the directors present at that meeting. [Section 372A(2)]
8. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1,000/-. [Section 286(2)]
9. If your company has taken any term loan from any one of the
financial institutions referred to in section 4A and that term loan is
subsisting then obtain prior approval of that financial institution before
implementing the proposal. [Section 372A(2)]
10. Keep in mind that your company will not be required to take
prior approval of a public financial institution, where the aggregate of the
loans and investments so far made, the amounts for which guarantee or security
so far provided to or in all other bodies corporate, alongwith the investments,
loans, guarantee or security proposal to be made or given does not exceed the
limit of sixty per cent specified in sub‑section (1) of section 372A if
there is no default in repayment of loan instalments or payment of interest
thereon as per the terms and conditions of such loan to the public financial
institution. [Section 372A(2) Proviso]
11. If your company decides to give loan or guarantee or provide
security in connection with such loan and to make investments exceeding 60% of
your company's paid‑up share capital and free reserves or 100% or more
than 100% of your company's free reserves, which ever is more then take the
steps given below.
12. Convene a Board Meeting after giving notice to all the
directors of your company as per section 286 to approve the loan, guarantee,
security and investment and also to fix up the date, place and agenda for a
General Meeting to pass a Special Resolution there at in that regard. [Section
372A(1)first proviso]
13. If your company is a listed company then have the Special
Resolution mentioned above passed through postal ballot. [Section 192A read
with Rule 4(g) of the Companies (Passing of the Resolution by Postal Ballot)
Rules, 2001.
14. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1,000/‑. [Section 286(2)]
15. Draft
the notice of the aforesaid Special Resolution indicating therein clearly the
following:
(a) specific
limits;
(b) particulars of the body corporate in which the investment is
proposed to be made or loan or security or guarantee to be given;
(c) the
purpose of the investment, loan or security or guarantee;
(d) specific
sources of funding;
(e) other
details. [Section 372A(1) thirdproviso]
16. Have the aforesaid notice and its relevant Explanatory
Statement approved by your
company's Board.
17. Issue notices in writing at least twenty‑one days
before the date of the General Meeting proposing the Special Resolution with
suitable Explanatory Statement. [Section 171(1) read with section 173(2)]
18. Hold the General Meeting and pass the Special Resolution by
three fourths majority. [Section 189]
19. Forward to the Stock Exchange with which your company is
enlisted three copies of the notice and a copy of the proceedings of the
General Meeting. [Clause 31(1)(c) and (d) of the Standard Listing Agreement.]
20. File the Special Resolution in Form No. 23 along with the
Explanatory Statement with the concerned Registrar of Companies within thirty
days of its passing [Section 192(4) & (4)(a)] after paying the requisite
fee prescribed under Schedule X to the Companies Act, 1956, either in cash or
treasury challan. [Rule 22(1)]
21. Please keep in mind that if default is made in complying with
the aforesaid filing, the company and every officer of the company who is in
default will be punishable with fine upto Rs. 200/‑ for every day during
which the default continues. [Section 192(5)]
22. If the fee is paid by way of treasury challan, then pay the
requisite fee by way of treasury challan prepared in triplicate and paid in
cash into any of the specified brancheslo of the Punjab National Bank for
credit.
23. The description of the Head of account of the treasury
challan should be as prescribed under Rule 22(2) of the Companies (Central
Government's) General Rules and Forms, 1956 and as amended vide GSR 25](E),
dated 21‑6‑1996 (w.e.f. 21‑6‑1996). For account head
and code please see Rule 22(2) in Appendix 1.
24. Two copies of the treasury challan will be given back to the
depositor out of which the original copy should be attached to the Form.
25. Keep in mind that the Special Resolution mentioned in item 12
is not required to be previously passed if your company is giving guarantee
only and exceptional circumstances exist preventing your company to obtain
previous authorisation by a Special Resolution and in such case convene a Board
Meeting and pass a Board Resolution authorising the giving of such guarantee
and confirm the said Board Resolution within 12 months in an Extraordinary or
Annual General Meeting of your company held immediately after passing of the
said Board Resolution. [Section 372A(1) secondproviso]
26. Do not make any loan to any body corporate at the rate of
interest lower than the prevailing bank rate of interest being the standard
rate made public under section 49 of the Reserve Bank of India Act, 1934.
[Section 372A(3)].
27. Also follow the guidelines if any, prescribed by the Central
Government for the purposes of section 372A. [Section 372A(7)].
28. Maintain a register showing the following particulars in
respect of every investment or loan made, guarantee given or security provided
by your company in relation to any body corporate:
(i) the
name of the body corporate;
(ii) the
amount, terms and purpose of the investment or loan or security or guarantee;
(iii) the
date on which the investment or loan has been made; and
(iv) the date on which the guarantee has been given or security has
beer provided in connection with a loan. [Section 372A(5)(a)] .
29. Enter the above particulars in the register chronologically
within seven days of the making of such investment'or loan or the giving of
such guarantee or the provision of such security. [Section 372A(5)(b)].
30. Keep the aforesaid register at the registered office of your
company and also keep it open to inspection at such office and allow extracts
to be taken therefrom and copies to be taken thereof that may be required by
any member of the company to the same extent, in the same manner, and on
payment of the same fees as in the case of the register of members of the
company; and the provisions of section 163 shall apply accordingly. [Section
372A(6)].
31. Note that if your company fails to comply with the
requirements of maintaining the aforesaid register and entering therein the
required particulars within the required time then the company and every
officer of the company who is in default shall be punishable with fine which
may extend to five thousand rupees and also with a furhter fine which may
extend to five hundred rupees for every day after the first during which the
default continues. [Section 372A(10)].
32. Further note that if your company fails to comply with the
requirements of section 372A except sub‑section (5) of that section
relating to keeping of register of loans and investments then the company and
every officer of the company who is in default shall be punishable with
imprisonment which may extend to two years or with fine which may extend to
fifty thousand rupees; [Section 372A (9)] .
33. Keep in mind that where any such loan or any loan in
connection with which any such guarantee or security has been given, or
provided by the company, has been repaid in full, no punishment by way of
imprisonment shall be imposed under this sub‑section, and where such loan
has been repaid in part, the maximum punishment which may be imposed by way of
imprisonment shall be appropriately reduced. [Section 372A(9) first proviso.].
34. Further keep in mind that all persons who are knowingly
parties to any such contravention shall be liable, jointly and severally, to
your company for the repayment of the loan or for making good the same which
the company may have been called upon to pay by virtue of the guarantee given
or the securities provided by your company. [Section 372A(9) second proviso].
35. Please note that for the purposes of section 372A, loan
includes debentures or any deposit of money made by one company with another
company, not being a banking company. [Seciion 372A(10) Explanation (a)]
36. Further note that for the purposes of section 372A, free
reserves means those reserves which, as per latest audited balance‑sheet
of a company, are free for distribution as dividend and will include balance to
the credit of the securities premium account but will not include share
application money. [Section 372A(10) Explanation (b)].
37. Keep in mind that if your company has defaulted in complying
with the provisions of section 58A, your company cannot directly or indirectly
make any loan to any body corporate or give any guarantee, or provide security,
in connection with a loan made by any other person to, or to any other person
by, any body corporate or acquire by way of subscription, purchase or otherwise
the securities of any other body corporate. [Section 372A(4)]
38. Keep also in mind that obtaining the approval for making investments
into securities or grant of loans to other companies of amounts which are
linked with Company's available financial resources and the resolution for
investment much beyond the networth should not be passed by your company."
39. Specifically indicate in the Explanatory Statement to the
resolution, the specific securities in which your company is proposed to invest
the amount. Enblock approval should normally be avoided except in the case of
guarantee where the resolution can indicate an amount on annual basis.
40. Further keep in mind that if your Company's paid up share
capital is less than Rs. 50 lakhs but is equal to or more than Rs. 10 lakhs
then your company is required to obtain a Compliance Certificate from a
secretary in whole‑time practice to be filed with the Registrar of
Companies mentioning therein inter alia that the company has made loans and
investments or given guarantees or provided securities to other bodies
corporate in compliance with the provisions of the Act and has made necessary
entries in the register kept for the purpose as per paragraph 25 of the Form of
Compliance Certificate appended to the Companies (Compliance Certificate)
Rules, 2001. [Section 383‑A(1) proviso]
Topic 263
DO
YOU WISH TO INVEST YOUR EMPLOYEE'S MONEY OR SECURITY OR PROVIDENT FUND?
Re: Employee's
Money or Security
1. The following procedure will apply where any money or
security is deposited with your company by an employee in pursuance of contract
of service with your company and not otherwise. [Section 417(1)]
2. Deposit the money or security of your employee within
fifteen days of the receipt thereof in the following manner. [Section
417(1)(a), (b) and (c)]:
(a) in
a post office savings bank account; or
(b) in a special bank account to be opened for this purpose in
the State Bank of India or in a Scheduled Bank; or
(c) if your company is itself a Scheduled Bank, in a special
account either by the company in itself opened for this purpose or in the State
Bank of India or in any other Scheduled Bank.
3. Do not utilise the aforesaid amount for any purpose other
than those stipulated in the contracts of service.[Section 417(2)]
4. Remember that an employee shall always have power to see
bank's receipt for any deposit of such money or security. [Section 419]
Re: Provident
Funds:
1. Note that in the case of statutory setting up of provident
fund under the Employees' Provident Funds Act, you will have to deposit the
employer's and employee's contributions to the Government Fund set up under the
Act, which has been empowered to invest the money.
2. Further note that apart from the above fund, you may have
Provident Fund Schemes of your own which may not be covered by the Act or if
covered by it, might be granted exemption from the Act under Section 16(1)(b)
or 17 of the Employees' Provident Funds Act.
3. Decide
schemes for such funds in your Board Meeting and draw up terms and conditions.
4. Keep
the following points in mind while drafting such rules‑
(a) All investments of the fund money must be made only in the
securities mentioned or referred to in clauses (a) to (e) of Section 20 of the
Indian Trusts Act, 1882. [Section 418(1)(b)];
(b) The interest payable on the amount to an employee's credit
must in no circumstances exceed the rate of interest yielded by investment of
such fund. [Section 418(2)];
(c) It is always desirable to make the rules conform as far as
possible to the model rules as given in the Employees' Provident Fund Scheme
and the Income‑tax Rules, 1962;
(d) Also decide on the circumstances of your case whether the
administration would be in the hands of the company or in a Board of Trustees
set up for that purpose;
(e) The
conditions mentioned in items 8 and 9 below should also be referred to.
5. Keep in mind that as soon as the money is contributed by the
employer and the employee, the same must be deposited by the company in the
same manner as mentioned in items 2(a), (b) and (c) hereof under the 1st head
[Section 418(1)] within fifteen days.
6. Also keep in mind that in case there is a Board of Trustees,
the company must hand over the money to this Board within fifteen days of
receipt and the Board shall be liable thereafter for the deposit thereof in the
same manner. [Section 418(4)]
7. Note that investment by the company or Board of Trustees, as
the case may be, only be made in the manner as mentioned in item 4(a) hereof.
[Sections 418(1)(b) and 418(4) ]
8. Further note that where the Rules of the fund are covered by
provisions of the Income‑tax Act and Rules made thereunder, an employee
shall have a right to obtain advances or withdraw money standing to his credit.
[Section 418(3)]
9. Remember that an employee shall always have the right to see
bank's receipt for any deposit of contributions to the fund. [Section 419]
10. Please keep in mind that any officer of a company or any
trustee of a provident fund who knowingly contravences, or authorises or
permits the vention of the provisions of section 417, 418 or 419 will be
punishable with imprisonment for a term upto 6 months or with fine upto Rs.
10,000/‑ [Section 420]
11. Note that if your company's paid‑up share capital is
less than Rs. 50 lakhs but is equal to or more than Rs. 10 lakhs, your company
is required to obtain a Compliance Certificate from a secretary in whole‑time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company has received certain amount of rupees as security from
its employees during the year under certification and the same has been
deposited as per provisions of section 417(1) and also that your company has
deposited both employee's and employer's contribution to provident fund with
prescribed authorities pursuant to section 418 as per paragraphs 32 and 33 of
the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001. [Section 383A(1) proviso]
Topic 264
[Foreign
Exchange Management (Transfer or Issue of Any Foreign Security) Regulations,
2000]
1. Keep in mind that no Indian Party can make direct investment
in a foreign entity engaged in real estate business or banking business.
[Regulation 5(2)]
2. Also keep in mind that the direct investment is made in a
foreign entity engaged in the same core activity carried on by your company.
3. Further keep in mind that the Indian Party routes all
transactions relating to the investment through only one branch of an
authorised dealer to be designated by it.'
4. Note that your company should not be on the RBI's caution
list or under investigation by the Enforcement Directorate.
5. Check whether your company's total financial commitment will
exceed us $ 100 Million or its equivalent in any financial year except
investment in Nepal, Bhutan and Pakistan and also whether the financial
commitment ceiling is US $75 million or its equivalent in any one financial
year in Mayammar and SAARC countries other than Nepal, Bhutan and Pakistan.
[Regulation 6(2)(i)]
6. Further check whether your company's direct investment in
Nepal or Bhutan if made in Indian rupees, the total financial commitment does
not exceed Rs. 350 crores in any one financial year'. [Regulation 6(2)(ii)]
7. If your company's investment is within US$ 100 Million, then
make an application in Form ODA in triplicate, together with Form A‑2,
duly filled in to the designated branch of the authorised dealer for onward
transmission to the RBI.
8. Attach
the following to the said application:
(i) Certified copy of the resolution of the Board of Directors
of your company approving the investment;
(ii) Certificate from the authorised dealer in the prescribed form
given in the aforesaid Form;
(iii) Certificate
from your company's statutory auditors in the format given in the Form.
9. No
fee is required to be paid for making this application to the authorized
dealer.
10. If our company's total financial commitment in the investment
exceeds US $100 Million then make the application in triplicate in Form ODI to
the Chief General Manager, RBI, Exchange Control Department, Central Office,
Overseas Investment Division (OID), Amar Building, Mumbai ‑ 400 001.
11. Attach
the following documents to it:
(i) Draft Joint Venture Agreement or memorandum and Articles of
Association in the case of wholly owned subsidiary, specifying the equity
structure, management, rights and responsibilities of shareholders and also
draft agreements for supply of technical know‑how, management and other
services, if applicable. .
(ii) A detailed project/feasibility report incorporating, inter
alia, projected funds flow statement and balance sheets for 5 years, the
information on various leverage and profitability ratios like debtequity ratio,
debt service coverage ratio, return on investments, etc. of the foreign concern
accompanied by the statement from a chartered accountant certifying the ratios
and projections, given in the application.
(iii) A
report from the bankers of your company in sealed/closed cover.
(iv) The latest balance‑sheet and profit and loss account
along with directors report of your company.
(v) Additional documents as under, if the application is made for
partial/full take over of an existing foreign concern:
(a) a
copy of the certificate of incorporation of the foreign concern;
(b) the
latest annual accounts of the foreign concern; and
(c) a copy of the share valuation certificate from a chartered
accountant/auditor's firm.
(vi) A copy of the resolution of the Board of Directors of your
company approving the proposed investment.
(vii) Where investment is in the financial services sector, a
certificate from a chartered accountant/auditors' firm to the effect that your
company:
(a) has earned a net profit during the preceding 3 years from the
financial services activity;
(b) is
registered with the appropriate regulatory authorities;
(c) has a minimum net worth (naid‑up capital and free
reserves) of not less than Rs. 15 crores as on the date of the latest audited
balance‑sheet; and
(d) has fulfilled the prudential norms relating to capital
adequacy as prescribed by the concerned regulatory authority in India.
[Regulation 7]
12. Note that RBI will take into account the following factors
while considering the aforesaid application:
(i) Prima
facie viability of the joint venture/wholly owned subsidiary outside India;
(ii) Contribution to external trade and other benefits which will
accrue to India through such investment;
(iii) Financial
position and business track record of your company and the foreign entity;
(iv) Expertise and experience of your company in the same or
related line of activity of the joint venture or wholly owned subsidiary
outside India. [Regulation 9(3)]
13. Also note that RBI may on application made to it approve
subject to such terms and conditions as considered necessary, a block
allocation of foreign exchange to an Indian Party which has exhausted the limit
available to it under subregulation (2) of Regulation 6. [Regulation 9A(1)4]
14. Further note that on receipt of ihe application the RBI will
allot a unique identification number for each joint venture or wholly owned
subsidiary outside India and your company should always quote the said number
in all its communications and reports to the RBI and the authorised dealer. [Regulation
10]
15. Keep in mind that your company may also make direct
investment outside India as above by way of capitalisation in full or part of
the amount due to your company from the foreign entity as follows:
(i) Payment for export of plant, machinery, equipment and other
goods/software to the foreign entity;
(ii) Fees, royalties, commissions or other entitlements of your
company due from the foreign entity for the supply of technical know‑how,
consultancy, managerial or other services. [Regulation 11]
16. In case of (ii) above, remember that where the export
proceeds have remained unrealised beyond a period of 6 months from the date of
export, such proceeds will not be capitalised without the prior permission of
the RBI.
17. Also keep in mind that the general permission under
Regulation 6 does not include investment proposals which envisage setting up a
holding company or a special purpose vehicle abroad, which would in turn set up
one or more step down subsidiaries as operating units.
18. Further keep in mind that if your company's name is in the
RBI's caution list it is not eligible to make overseas investments under the
automatic route as per Regulation 6(2)(v) and this restriction is also
applicable to Indian parties which are defaulters to the banking system in
India and whose names appear in the defaulters list published/circulated by
RBI.
§ Topic 265
1.
Make the application to the concerned authorised dealer with whom the EEFC
account is maintained in Form ODA in triplicate along with Form A‑2 if
the total financial commitment of your company does not exceed the higher of
the following amounts :
(a)
amount equivalent of US $100 million; or
(b)
amount equivalent to 110 times the export earnings of the Indian Party during
the proceeding financial year as reflected in its audited balance sheet inclusive
of all investments made under Regulations' in Part I including the amount
mentioned above in clause (a) above in the same financial years.
(i)A
brief project/feasibility report incorporating, inter alia, projected
funds flow statements and balance sheets for five years, the information on
various leverage and profitability ratios like debt‑ equity ratio, debt
service coverage ratio, return on investments, etc. of the proposed foreign
concern.
(ii)Statement
from a chartered accountant verifying and certifying the ratios and
profitability projections made in the project/feasibility report and the
application.
(iii)If
the application is made for partial/full take over of an existing foreign
concern, a chartered accountant's certificate regarding the fair value of
shares of the overseas concern.
(iv)A
copy of the resolution of the Board of directors of the Indian promoter‑company
approving the proposed investment.
(v)Where
investment is in the financial services sector (e.g., insurances, mutual fund,
asset management, etc.) a certificate from a chartered accountant certifying
that
(a) the networth of the company (paid‑up capital + free
reserves) is equal to/more than Rs. 15 crores as on the date of the last
audited balance sheet;
(b) the company had made net profit in the immediately preceding
three years from the financial services activities;
(c) the company has fulfilled the prudential norms relating to
capital adequacy as prescribed by the concerned regulatory authority in India,
and
(d) the company is registered with SEBI as merchant banker or
with the Reserve Bank of India as a non‑banking finance company (NBFC)
for conducting financial services activities;
2. Ensure that in case your company holds more than one EEFC
account with authorised dealers, the overseas investments are routed through a
specific EEFC account with a particular branch of the authorised dealer.
3. Note that your company in this case must have already made
on ADR or GDR issue and that such ADRs/GDRs are currently listed on any Stock
Exchange outside India.
4. Keep in mind that the ADR and or GDR issue for the purpose
of acquisitior is backed by underlying fresh equity shares issued by your
company.
5. Further keep in mind that the valuation of shares of the
Joint Venture or wholly owned subsidiary abroad should be made as per the
recommendations of investment banker if the shares are not listed on any Stock
Exchange or based on the current market capitalization of the foreign company
arrived at on the basis of monthly average price on any stock exchange abroad
for the three months preceding the month in which the acquisition is committed
and over and above, the premium, if any as recommended by the investment banker
in its due diligence report in other cases.
6. Make the application in Form ODI in triplicate with the same
annexures as mentioned in item 1 above to the Chief General Manager RBI
Exchange Control Department, Central Office Overseas Investment Division, Amar
Building, Murnbai ‑ 400 001 if your total financial commitment exceeds
the limits mentioned in item 1.
7. Keep in mind that if such remittance is effected to an
existing Joint Venture/Wholly on Subsidiary Abroad already approved by Reserve
Bank of India/ Ministry of Finance under other schemes, obligations stipulated
in the approval letter issued by them including repatriation dividend and other
entitlements within the specified time frame will continue to be applicable.
8. Also keep in mind that where the approved equity/loan is to
be contributed in instalments, subsequent remittances will be allowed by the
authorised dealer concerned only after the receipt of the unique Identification
Number given by the Reserve Bank of India for the joint venture/wholly on
subsidiary, which should be quoted by your company and the authorised dealer in
all future correspondence.
9. In case your proposal is for an additional equity, loan and
guarantee in respect of the joint venture/wholly on subsidiary which was
already approved by Reserve Bank of India or the authorised dealer, then make
the application in the same Form ODA in triplicate to the concerned authorised
dealer citing the Reserve Bank Identification Number.
10. In the aforesaid supplemental application do not repeat the
particulars furnished earlier to the authorised dealer when the first
application in Form ODA was submitted indicate the revised particulars in the
said supplemental application.
11. In case your company's proposal for overseas investments
involves cash remittance of equity and loan such proposal will be dealt with by
the authorised dealers under the delegated authority but proposals in other
cases where the overseas investments involves capitalisation of export proceeds
of plant and machinery/goods, utilisation of Euro‑issue proceeds then your
company should make the application either to the Reserve Bank of India or to
the Ministry of Finance as per the existing procedure.
12. Enclose a duly certified statement indicating details of
investments availed of from the EEFC account under the automatic route such as
date of approvallidentification number, amount approved for each joint
venture/wholly on subsidiary, country or their location etc. to the application
in Form ODA (automatic route) or Form ODI being proposed exceeding the
investment limit mentioned in item 1. As the case may be, in order to ensure
that investments made under the automatic route operated by the Reserve Bank of
India and the new EEFC window does not exceed the aforesaid limit or exceeds
any financial year when your company is making the application.
13. Keep in mind that authorised dealers who were earlier
required to submit two copies of Form ODA along with a report on remittance in
the Form ODR in duplicate to Regional Office of the Exchange Control Department
of the RBI under whose jurisdiction it is functioning should now forward them
to the Chief General Manager, Exchange Control Department (Overseas Investment
Division) RBI, Central Office, 3rd Floor, Amar Building, Mumbai ‑ 400 001
immediately, after the investments are made. [A.P. (DIR Series) Circular No.
13, dated 14‑9-2000 issued by ECD, RBI].
14. Further keep in mind that where the investment in a Joint
venture or wholly owned subsidiary outside India is entirely funded out of your
company's EEFC account the conditions of making investment in a foreign entity
engaged in the same core activity as that of your company will not apply, for
the automatic route.
Topic 266
1. Make an application to either to the authorised dealer or to
the Chief General Manager, Exchange Control Department, Reserve Bank of India,
Central Office, Overseas Investment Division, Amar Building, Fort, Mumbai‑400
001 as the case may be in Form ODA or ODI in three sets.
2. Submit a copy of the full set of the application
simultaneously to the concerned Regional Office of the Reserve Bank of India to
enable them to furnish their comments to the Central Office with reference to
the records available with them.
3. Attach
the following documents to the aforesaid application:
(i) A copy of the latest quarterly progress report where the
project is under implementation or annual performance report if the project is
in operation already submitted in duplicate to the concerned Regional Office of
the Reserve Bank of India.
(ii) A copy of project/feasibility report incorporating inter alia,
projected funds flow statement and balance sheet for the next 5 years if the
application is for an increase in the level of equity, loan or guarantee in
respect of the existing joint venture or wholly owned subsidiary or extension
of fresh loan or guarantee, accompanied by a statement from a chartered
accountant verifying the projections in the report.
(iii) A copy of report giving information on various leverage and
profitability ratios of the foreign concern after infusion of additional
equity/extension of fresh/additional loan/guarantee accompanied by a statement
from a chartered accountant verifying the said ratios.
(iv) Certificates in Form BCX from the concerned authorised dealers
in support of export performance for the last 3 years excluding equity exports
and also certificates in Form BCI from the concerned authorized dealers towards
foreign inward remittance accompanied by a certificate from a chartered
accountant in support of other foreign exchange earnings for the last 3 years.
(v) A copy of the application made to "in principle"
approval letter obtained from the Ministry of Finance if the additional
resources for investment are to be raised through Global Depository Receipts
(GDR) route.
(vi) Copies of latest annual accounts of the applicant company as
well as of the overseas joint venture/wholly owned subsidiary.
(vii) A copy of the resolution of the Board of Directors of your
company or of all the Indian promoter companies approving the proposed
additional investment.
(viii) Details of plant and machinery or goods proposed to be exported
from India as equity contribution, in a prescribed proforma wherever
applicable.
(ix) A copy of the letter of authority in favour of the applicant
given by all the companies if there are more than one Indian promoter of the
joint venture/wholly owned subsidiary abroad.
4. Please
write "NA" in the application form, where not applicable.
5. Attach additional sheets to the application if the space
available in the application against a particular item is insufficient.
Topic 267
DO
YOU WISH TO HOLD INVESTMENT NOT IN THE COMPANY'S NAME?
1. Verify
the following before holding investment other than in your company's name:
(i) Your company has a right to appoint any person or persons as
directors of the other body corporate in which your company holds investments;
or
(ii) Your company has appointed any nominee or nominees as
director or directors of that other body corporate in which your company holds
investment. [Section 49(2)]
2. In any of the above cases, your company can hold investments
individually in the name of that person or nominee or jointly in the name of
your company and that person or nominee, to the extent of the amount not
exceeding the nominal value of the qualification shares which are required to
be held by that person or nominee as director of that other body corporate.
[Section 49(2)]
3. In the case of investments held in subsidiaries of your
company, they may be held in the name or names of any nominee or. nominees of
your company provided the number of members of that subsidiary company does not
go below two (private company) or seven (public company), as the case may be.
[Section 49(3)]
4. Convene a Board Meeting after giving notice to all the
directors of the company as per Section 286 and approve the holding of
investments individually in the name of the person or nominee or jointly in the
name of your company and any one of them by passing necessary resolution.
5. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1,000/‑ [Section 286(2)]
6. Keep the custody of the certificates or letters of allotment
relating to these shares or securities which are held in the name other than
your company's with your company or with the State Bank of India or a scheduled
bank being the bankers of your company. [Section 49(6)]
7. Enter
forthwith in the register of investments of your company the following particulars:
(i) the nature, value and such other particulars as may be
necessary so as to fully identify the shares or securities so held in the other
name; and
(ii) the bank or person in whose name or custody the shares or
securities are held. [Section 49(7)]
8. Keep the register open for inspection by any member or
Debenture‑holder of your company without charge during business hours
which should not be less than two hours on each day. [Section 49(8)]
9. Note that for default of complying with the requirements of
section 49, the company and every officer of the company who is in default will
be punishable with fine of upto Rs. 50,000/-, [Section 49(9)]
10. Further not that if your Company's paid‑up share
capital is less than Rs. 50 lakhs but is equal to or more than Rs. 10 lakhs
your company is required to obtain a Compliance Certificate from a secretary in
whole‑time practice to be filed with the Registrar of Companies
mentioning therein inter alia that your company has kept and maintained all
registers as stated in Annexure A to the said Certificate as per the provisions
and the rules made thereunder and all entries therein have been duly recorded
as per paragraph 1 of the Form of the Compliance Certificate appended to the
Companies (Compliance Certificate) Rules, 2001.[Section 383‑A(1),
proviso]
C. Borrowings‑Company Deposits
(Topic 268 to
Topic 276)
Topic 268
DO
YOU WISH TO INVITE DEPOSITS FOR YOUR COMPANY BEING NON‑BANKING NON‑FINANCIAL
COMPANY?
1. Convene a Board Meetingf after giving notice to all the
directors of the company as per Section 286 and decide about the inviting or
renewing of deposits already accepted and approve the text of the advertisement
to be published. [Rule 4(2) of the Companies (Acceptance of Deposits) Rules,
1975]
2. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1,000/-. [Section 286(2)]
3. Keep in mind that if your company's net owned fund is Rs. 1
crore or more only then your company can invite public deposits. [Rule 3(1)(e)
of the Companies (Acceptance of Deposits) Rules, 1975]
4. Further keep in mind that net owned fund has the same
meaning as assigned to it in the RBI Act, 1934. [Rule 2(e) of the Companies
(Acceptance of Deposits) Rules, 1975]
5. The
advertisement must contain a reference to the conditions subject to which
deposits shall be accepted and date on which it was approved by the directors
and the particulars to be advertised are:
(a) name
of the company;
(b) the
date of incorporation of the company;
(c) the business carried on by the company and its subsidiaries
with the details of branches or units, if any;
(d) brief
particulars of the management of the company;
(e) names,
addresses and occupations of the directors;
(f) profits of the company, before and after making provisions
for tax, for the three financial years immediately preceding the date of
advertisement;
(g) dividends
declared by the company in respect of the said years;
(h) a summarised financial position of the company as in the two
audited balance‑sheets immediately preceding the date of advertisement in
the form prescribed in rule 4 of the Companies (Acceptance of Deposits)
Amendment Rules, 1978;
(i) the amount which the company can raise by way of deposits
under the rules and the aggregate of deposits actually held on the last day of
the immediate preceding financial year;
(j) a statement to the effect that on the day of the
advertisement, the company has no overdue deposits other than unclaimed
deposits or a statement showing the amount of such overdue deposits, as the
case may be;
(ja) the total number of small depositors and amount due to them in
respect of which default has been made;
(jb) the
fact of waiver of interest accrued on deposits of the small depositors.
(k) declaration to the effect:
(i) that
the company has complied with the provisions of the rules;
(ii) that compliance with the rules does not imply that repayment
of deposits is guaranteed by the Central Government;
(iii) that the deposits accepted by the company (other than secured
deposits, if any, accepted under the provisions of the rules, the aggregate
amount of which may be indicated) are unsecured and ranking pari passu with
other unsecured liabilities; and
(iv) that the company is not in default in the repayment of and
deposit or part thereof and any interest thereupon in accordance with terms and
conditions of such deposit.
6. Make sure that your company does not make any mis‑statement
in the advertisement. [Section 58B read with sections 62 and 63]
7. Also make sure that the company is not in default in the
repayment of any deposit or part thereof and any interest, thereupon in
accordance with the terms and conditions of such deposit. [Section 58A(2)(C)].
8. Make a list of small depositors who have deposited in a
financial year a sum not exceeding Rs. 20,000/‑ in your company and they
include their successors, nominees and legal representatives. [Section 58AA
Explanation]
9. Keep in mind that if any default is made by your company, in
repayment of any deposits or part thereof or any interest thereupon to small
depositors intimate to the Company Law Board within 60 days from the date of
default including particulars in respect of the names and addresses of each
small depositor, the principal sum of deposits due to them and interest accrued
thereupon. [Section 58AA (2)]
10. Note that a penal rate of interest of 18% have to be paid by
your company for the overdue period in case of public deposits matured and
claimed but remaining unpaid, and in case of deposit made by a small depositor,
the penal interest shall be 20% compoundable on an annual basis. [Rule 8A' of
the Companies (Acceptance of Deposits) Rules, 1975]
11. Also keep in mind that, for removal of doubts, it is hereby
declared that the intimation as aforesaid should be given on monthly basis.
[Section 58AA(2) Explanation]
12. Publish the advertisement in a leading English newspaper in
English Ianguage and in one vernacular newspaper in vernacular language
circulating in the State in which the registered office of the company is
situated. [Rule 4(1) of the' Companies (Acceptance of Deposits) Rules, 1975]
13. Deliver a copy of the advertisement signed by a majority of
the directors, to the Registrar before publication. [Rule 4(4) of the Companies
(Acceptance of Deposits) Rules, 1975]
14. Prepare the application form to be submitted by the intending
depositors. Application for deposit should be in company's own application form
and should contain the prescribed declaration by the applicant regarding the
source of the money. [Rule 5 of the Companies (Acceptance of Deposits) Rules,
1975]
15. Ensure that the application forms of deposits of the company
contain a clause giving holders of fixed deposits either holding singly or
jointly freedom to nominate at, any time a person to whom his or their deposits
will vest in the event of his or their deaths. [Section 58A (11)]
16. Forward promptly to the Stock Exchange with which your
company is enlisted three copies of notice published in newspapers as mentioned
under item 5. [Clause 31(e) of the Standard Listing Agreement]
17. Issue a receipt containing the prescribed details signed by
an officer of the company on acceptance or renewal of deposits. [Rule 6 of the
Companies (Acceptance of Deposits) Rules, 1975]
18. Make entries in the Register of Deposits maintained for the
purpose and containing the particulars prescribed by rule 7 of the Companies
(Acceptance of Deposits) Rules, 1975.
19. File a returnt on or before 30th June every year with the
Registrar of Companies and furnish a copy of the return simultaneously to the
Reserve Bank of India. [Rule 10 of the Companies (Acceptance of Deposits) Rules
1975]
20. Deposit or invest, not less than 15 per cent of the amount of
deposits accepted by your company maturing during the year ending on the 31st
March next following in any of the following ways within 30th April of each
year:
(i) in
a current or other deposit account with any scheduled bank, free from charge or
lien;
(ii) in
unencumbered securities of the Central Government or of any State Government;
(iii) in unencumbered securities mentioned in clauses (a) to (d) and
(ee) of Section 20 of the Indian Trusts Act, 1882;
(iv) in unencumbered bonds issued by the Housing Development
Finance Corporation Limited, Bombay. [Rule 3A(1) of the Companies (Acceptance
of Deposits) Rules, 1975]
21. Ensure that the rate of interest offered by your company on
such deposits does not exceed twelve and half per cent per annum at monthly
rests. [Rule 3(1)(c) of the Companies (Acceptance of Deposits) Rules, 1975]
22. Ensure also that where the interest is paid at shorter than
monthly rests, the amount of interest shall be discounted so as not to exceed
the amount of interest calculated at monthly rests [Rule 3(1)(c), proviso of
the Companies (Acceptance of Deposits) Rules, 1975]
23. Pay brokerage to any broker at a rate not exceeding one per
cent of the deposits collected by or through such broker for a period up to one
year and one and half per cent of the deposits for a period of more than one
year but up to two years and two per cent of the deposits for a period
exceeding two years. [Rule 3(1)(d) of the Companies (Acceptance of Deposits)
Rules, 1975]
24. Keep in mind that the above provisions are applicable to Non‑Banking
Non‑Financial companies only. [Rule 1(3) of the Companies (Acceptance of
Deposits) Rules, 1975]
25. Further keep in mind that the total amount of deposits that
can be accepted is limited to thirty‑five per cent of the paid‑up
share capital and free reserves of your company. [Rule 3(2) of the Companies
(Acceptance of Deposits) Rules, 1975]
26. Out of the thirty‑five per cent, ten per cent can be in
the form of deposits against unsecured debentures or deposit from shareholders
(not being a deposit accepted by a private company from its shareholders) or
deposit guaranteed by directors of the company.
27. Note that the other twenty‑five per cent can be any
other deposit and at the same time, out of the thirty‑five per cent, ten
per cent could be short term deposits repayable after a period of three months
i.e. to meet short term requirements for funds.
28. Further note that otherwise, generally deposits should not be
accepted for a period of less than six months. [Rule 3(1)(a) of the Companies
(Acceptance of Deposits) Rules, 1975]
29. Also note that with effect from 1st April, 1980,
if the total of other deposits which have already been accepted by a company
exceeds twenty‑five per cent of the paid‑up capital and free
reserves, no new deposits or renewal of the old deposits could be done.
30. Amount received by a private company from a person who at the
time of the receipt of the amount was a director, relative of a director or
member are not treated as deposits.
31. Ensure in the aforesaid case that the director or member as
the case may be from whom money is received, furnishes to your company at the
time of giving the money, a declaration in writing to the effect that the
amount is not being given out of funds acquired by him by borrowing or
accepting from others.
32. Where a company intends to accept deposits without inviting,
or allowing or causing any other person to invite such deposits it shall before
accepting deposits deliver to the Registrar for registration a statement in
lieu of advertisement containing all the particulars required to be included in
the advertisement by virtue of sub‑rule (2) of rule 4 of the Companies
(Acceptance of Deposits) Rules, 1975 and duty signed in the manner provided in
sub‑rule (4) of that rule. [Rule 4A(1)]
33. An advertisement issued in accordance with rule 4 of the
Companies (Acceptance of Deposits) Rules, 1975 or a statement in lieu of
advertisement filed in accordance with rule 4A of those Rules shall be valid
until the expiry of six months from the date of closure of the financial year
in which it is issued or delivered or until the date on which the balance‑sheet
is laid before the company in General Meeting.
34. Where the Annual General Meeting for any year has not been
held the advertisement will be valid till, the latest day on which that meeting
should have been held in accordance with the provisions of the Act, whichever
is earlier.
35. Note that on and from 1st day of March, 1997 no
company can accept or renew any deposit in any form if it is default in the
repayment of any deposits or part and any interest thereupon in accordance with
the terms and conditions of such deposit. [Rule 3(1A) of the Companies
(Acceptance of Deposits) Rules, 1975]
36. Keep in mind that if a company or any other person
contravenes the provisions of the Companies (Acceptance of Deposits) Rules,
1975, the company and every officer of the company who is in default or such
other person will be punishable with fine of upto Rs. 500/and where the
contravention is a continuing one with a further fine of upto Rs. 50/‑
for every day after the first, during which the contravention continues. [Rule
11 of the Companies (Acceptance of Deposits) Rules, 1975]
37. Further keep in mind that if a company accepts or invites or
allows or causes any other person to accept or invite on its behalf, any
deposit in excess of the limits or in contravention of the manner or condition
prescribed or in contravention of the provisions of sub‑section (2) of
Section 58A, the company will be punishable with fine not less than an amount
equal to the amount of the deposit so accepted where the contravention relates
to the acceptance of any deposit and with fine of upto Rs. 10 lacs but not less
than Rs. 50,000/- where the contravention relates to the invitation of any
deposit. Every officer of the company who is in default will also be punishable
with imprisonment for five years and will also be liable to fine. [Section
58A(6)]
38. Do not accept at any time further deposit from small
depositors, unless each small depositor, whose deposit has matured, had been
paid the amount of the deposit and the interest accrued thereupon. [Section
58AA(4)]
39. Accept deposit in the aforesaid case only if the depositor
has renewed it voluntarily, or where the repayment of deposit has become
impracticable due to death of the small depositor or whose repayment has been
stayed by a competent court or authority. [Section 58AA(4) Proviso (a)]
40. If your company has on any occasion made a default in the
repayment of a deposit or part thereof or any interest thereupon to a small
depositor, then state in every future advertisement and application form
inviting deposits from the public, the total number of small depositors and
amount due to them in respect of which such default has been made.
["Section 58AA (5)]
41. If your company has waived any interest accrued on deposits
of the small depositors, then mention the fact of such waiver in every advertisement
and application form inviting deposits issued by your company after such
waiver. [Section 58AA (6)]
42. ote that if your company had accepted deposits from small
depositors and subsequent to such deposits obtains funds by taking a loan for
the purpose of its working capital from any bank, your company must first
utilise the funds so obtained for the repayment of any deposit or any part
thereof or any interest thereu on to the small depositor before applying such
funds for any other purpose. [Section 58AA(7)]
43. nsure that every application form issued by your company to a
small depositor for accepting deposits from him contains a statement to the
effect that the applicant had been apprised every past default by your company
in the repayment of deposit or interest thereon, if any such default has
occurred and the waiver of interest under sub‑section (6) of section
58AA, if any and reasons therefor. [Section 58AA(8)]
44. lease keep in mind that whoever knowingly fails to comply
with the provisions of section 58AA will be punishable with imprisonment of 3
years and also will be liable to fine of Rs. 500/ for every day during which
such noncompliance continues. [Section 58AA(9)]
45. lease also keep in mind that if your company or any other
person contravenes any provisions of section 58AA, every person who at the time
the contravention was committed was director of your company, as well as the
company will be deemed to be guilty of the offence and will be liable to be
proceeded against and punished accordingly. [Section 58AA(10)]
46. Transfer the amount of matured deposits of your company along
with interest accrued thereon remaining unclaimed and unpaid for a period of
seven years from the date they became due for payment to the Investor Education
and Protection Fund established under Section 205C. [Section 205C(2)(c) and (e)
read with its proviso]
47. Further keep in mind that the Regional Director of
the Department of Company Affairs shall be the authorised officer to make
complaints under subsection (2) of section 58AAA for every offence connected
with or arising out of acceptance of deposits under section 58A or 58AA. [Rule
11A of the Companies (Acceptance of Deposits) Rules, 1975]
48. Note that if your company's paid‑up share capital is
less than Rs. 50 lakhs but is equal to or more than Rs. 10 lakhs, your company
is required to obtain a Compliance Certificate from a secretary in whole‑time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company has complied with the provisions of sections 58A and 58AA
read with the Companies (Acceptance of Deposits) Rules, 1975/the applicable
directions issued by the Reserve Bank of India/any other authority in respect
of deposits accepted including unsecured loans taken, amounting to the
specified amount raised by the company during the year and the company has
filed the copy of advertisement and necessary particulars as required with the
Registrar of Companies on a specified date and the company has also filed
return of deposit with the Registrar of Companies/Reserve Bank of India/other
authorities as per paragraph 23 of the Form of Compliance Certificate appended
to the Companies (Compliance Certificate) Rules, 2001.[Section 383‑A(1)
proviso]
49. Further
note the following before inviting deposits from the public :‑
(i) it is relatively easier to invite and attract public
deposits as they do not require stringent disclosures or ratings compared to
inviting bonds or commercial paper;
(ii) by inviting deposits from the public your company will be
cashing in on limited investment options available to small investors.
50. Adhere to the guidelines for Asset Liability Management
System in order to face the risk relating to interest rate and liquidity in a
structured manner by upgrading your company's risk management and Liability
Management practices. For details, see Topic 269.
Topic 269
DO YOU WISH TO ADOPT ASSET LIABILITY
MANAGEMENT SYSTEM BEING A NON‑BANKING FINANCIAL COMPANY?
1. Note that as the operations of Non‑Banking Financial
Companies (NBFCs) often give rise to asset liability mismatches and interest
rate risk exposures, Asset Liability Management (ALM) system has been
introduced for the NBFCs as part of their overall system for effective risk
management in their various portfolios.
2. Further note that the guidelines relating to ALM system
would be applicable to all NBFCs irrespective of whether they are
accepting/holding public deposits or not.
3. Check whether your company's asset base is either Rs. 100
crores or more irrespective of 0whether your company is accepting/holding
public deposits or not or whether your company is holding public deposit of
Rs.20 crores or more irrespective of your asset size as per its audited balance
sheet as of March 31st, 2001, and in either of the case you are required to put
in place the ALM system.
4. Commence the trial run during the period ending 30th
September, 2001, which may continue during the half year beginning 1st
October, 2001.
5. Ensure that the ALM system guidelines are fully operational
in your company by the year ending 31st March, 2002.
6. Submit your company's first ALM half yearly return as on
30th September, 2002 with the Reserve Bank of India within a month of this date
that is before 31st October,
2002 if your company is holding public deposit and continue thereafter in
similar manner.
7. Ensure
that the half yearly returns comprise of the following three parts
(1) Statement
of structural liquidity in format ALM given in Annexure I;
(2) Statement
of short‑term dynamic liquidity in format ALM‑Annexure II; and
(3) Statement
of interest rate sensitivity in format ALM‑Annexure III.
8. Convene a Board Meeting after issuing notices to the
directors of your company as per Section 286 and constitute an Asset Liability
Management Comi‑nittee being a small group under the charge of the chief
executive officer or a senior executive responsible for treasury function of
your company with members drawn from resources, investment, foreign exchange,
credit and Management Information System (MIS) areas by passing a Board
Resolution.
9. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine upto Rs.1000/‑. [Section 286(2)].
10. Entrust the group with the task of carrying out necessary
spade work for formalising the ALM system in your company.
11. Sent to the Reserve Bank of India a certificate regarding
constitution of the Asset Liability Management Committee (ALCO) before 31st
October, 2001.
12. See that the ALCO consisting of your company's senior
management including the chief executive officer is made responsible for
ensuring adherence to the limits set by the Board of Directors of your company
as well as for deciding your company's business strategy on the assets and
liabilities sides in line with your company's budget and decided risk
management objectives.
13. Before putting in place the ALM system first have a strong
MIS in your company and computerise the MIS for a quick analysis and
consolidation of data and make use of specialised software for managing the
assets and liabilities with respect to the maturity mismatches and the various
risks associated with such mismatches.
14. Ensure that the ALM support groups consisting of operating
staff are made responsible for analysing, monitoring and reporting the risk
profiles to the ALCO.
15. Note that the business issues that the ALCO would consider,
inter alia, will include product pricing for both deposits and advances,
desired maturity profile and mix of the internal assets and liabilities,
prevailing interest rates offered by other peer NBFCs for similar
services/product, etc.
16. Further note that in addition to monitoring the risk levels
of your company, the ALCO should review the results of and progress in
implementation of the decisions made in the previous meetings.
17. See that the ALCO also articulates the current interest rate
view of your company and base its decisions for future business strategy on
this view.
18. Please keep in mind the size or number of members of ALCO
would depend on the size of your company, its business mix and organisational
complexity.
19. Have the management committee of your company's Board of
Directors or any other specific committee constituted by the Board of Directors
oversee the implementation of the ALM system and review its functioning
periodically.
20. If your company faces any operational difficulties in
implementing the ALM system guidelines in the course of the trial runs during
the period ending 30th September, 2001 and beginning Ist October, 2001, or if
your company has any suggestions to make for improvement of the guidelines
communicate the same to the Regional Office of the Reserve Bank of India under
whose jurisdiction the registered office of your company is situated.
21. Note
that the ALM process rests on the following three pillars
(1) ALM Information Systems, Management Information Systems and
Information availability, accuracy, adequacy and expediency.
(2) ALM Organisation, Structure and Responsibilities, Level of
top management involvement.
(3) ALM Process including risk parameters, risk identification,
risk measurement, risk management and risk policies and tolerance levels.
Topic 270
1. Convene a Board Meeting after giving notice to all the
directors of the company as per Section 286 and take the decision whether to
ask for an extension of time or exemption by passing a resolution.
2. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1,000/‑[Section 286(2)]
3. Before making the application, publish a general notice in
Form No. 2 of the Companies [Application for Extension of Time or Exemption
Under Subsection (8) of Section 58A] Rules, 1979, to the members of the public
at least once in English language and once in vernacular language in newspapers
of these two languages having wide circulation in the region in which the
registered office of the company is situate. [Rule 4]
4. Apply to the Central Government in Form No. 1 of the Companies
[Application for Extension of Time or Exemption under Sub‑section (8) of
Section 58A] Rules, 1979. [Rule 2]
5. Attach
to the application the following documents:
(i) A
certified true copy of the Articles of Association of your company;
(ii) A certified true copy of the audited accounts of your company
for the last three years;
(iii) Certified true copies of Directors' report and auditor's
report for the last three years;
(iv) A
certified true copy of the Board resolution;
(v) Certified true copy of each quarterly, half yearly or other
pro forma account of the company subsequent to the latest audited accounts;
(vi) Certified true copies of the cuttings of newspapers evidencing
that the general notice was duly published;
(vii) Certified true copy each of the advertisement issued in
newspapers pursuant to rule 4 of the Companies (Acceptance of Deposits) Rules,
1975;
(viii) A crossed demand draft in favour of the Pay and Accounts
Officer, Department of Company Affairs, New Delhi, and payable at New Delhi,
for requisite application fees prescribed by the Companies (Fees on
Applications) Rules, 1999. [Rule 3 of the Companies (Application for Exclusion
of Time or Exemption under Sub‑section (8) of section 58A) Rules, 1979]
6. Deliver simultaneously a copy of the application along with
a copy of each of the documents annexed to the application to the Registrar of
Companies.
7. Forward promptly to the Stock Exchange with which your
company is enlisted three copies of notice published in news papers as mentioned
under item 2. [Clause 31(e) of the Standard Listing Agreement ]
8. Note that as per the Citizen's Charter of the Department of
Company Affairs, Schedule 1, Serial No. 18, the application made to the Central
Government will be processed within 15 days. [No. 5/25/99‑CL‑V,
Press Note No. 9/99 dated 9‑8‑1999].
9. Note that if your company's paid‑up share capital is
less than Rs. 50 lakhs but is equal to or more than Rs. 10 lakhs, your company
is required to obtain a Compliance Certificate from a secretary in whole‑time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company has obtained all necessary approval of the Central
Government as may be prescribed under the various provisions of the Act as per
paragraph 17 of the Form of Compliance Certificate appended to the Companies
(Compliance Certificate) Rules, 2001. [Section 383‑A(1) proviso]
Topic 271
DO YOU WISH TO INVITE DEPOSITS FROM THE
PUBLIC FOR YOUR COMPANY BEING NON‑BANKING FINANCIAL COMPANY?
[Non‑Banking Financial Companies Acceptance
of Public Deposits (Reserve Bank) Directions, 1998]1
1. Check whether your company is a non‑banking financial
company within the meaning of section 2(xi) of the Directions.
2. If your company falls within the definition as mentioned
aforesaid then check whether your company's Net Owned Fund (NOF) is Rs. 25 lakh
or above and NOF means NOF as defined under section 45IA of the Reserve Bank of
India Act, 1934 including the paid‑up preference shares which are
compulsorily convertible into equity.
3. If so, then your company can accept public deposit provided
it obtains minimum investment grade or others specified credit rating for fixed
deposits from any one of the following credit rating agencies atleast once a
year and a copy of that rating is sent to the Reserve Bank of India along with
return on prudential norms:
|
Name of the agency |
Minimum Investment Grade Rating |
|
(a) The Credit Rating Information Services of India Ltd. (CRISIL) |
FA‑(FA Minus) |
|
(b) (ICRA) Ltd. |
MA‑(MA Minus) |
|
(c) Credit Analysis & Research Ltd. (CARE) |
CARE BBB (FD) |
|
(d) FITCH Ratings India Private Ltd. |
Ind BBB‑(BBB Minus) |
4. Note that the above two requirements will not be required to
be followed if your company is an equipment leasing or hire purchase company.
[Paragraph 4(1)(i) proviso]
5. Keep in mind that in the event of upgrading or downgrading
of credit rating to any level from the existing level your company must within
15 working days of its being so rated inform, in writing, of such upgrading or
downgrading of credit rating to the Reserve Bank of India. [Paragraph 4(1)(ii)]
6. Further keep in mind that on or from January 31, 1998 your
company cannot accept or renew any public deposit whether accepted before or
after January 31, 1998 which is repayable on demand. [Paragraph 4(2)]
7. Also keep in mind that on or from January 31, 1998 your
company cannot accept or renew any public deposit whether accepted before or
after January 31, 1998 unless such deposit is repayable after a period of 12
months but not later than 60 months from the date of acceptance or renewal
thereof. [Paragraph 4(3)]
8. Note that if your company is either an Equipment Leasing
Company (ELC) or a Hire Purchase Finance Company (HPFC) having NOF below Rs. 25
lakh it cannot invite any public deposit.
9. Further note that if your Company is an ELC or a HPFC with
NOF of rupees twenty five lakhs or more and it complies with all the prudential
norms with capital adequacy ratio of not less than fifteen per cent as per last
audited balance sheet then only it can accept or renew public deposit, together
with the amounts remaining outstanding in the books of the company as on the
date of the acceptance or renewal of such deposit, not exceeding one and one
half times of its NOF or public deposit upto rupees ten crores, which ever is
lower. [Paragraph 4(4) clause (a)]
10. Further note that if your company is an ELC or a HPFC with
NOF of rupees twenty five lakhs or more and it complies with all the prudential
norms and it has also minimum investment grade credit rating then only it may
accept or renew public deposit, together with the amounts remaining outstanding
in the books of the company as on the date of the acceptance or renewal of such
deposit not exceeding four times of its NOF. [Paragraph 4(4) clause (b)]
11. Note that if your company is a Loan Company (LC) or an
Investment Company (IC) with NOF of less than Rs. 25 lakh it cannot invite
public deposit.
12. Further note that if your company is a LC or an IC and is
having NOF of rupees twenty five lakhs or more and is also having minimum
investment grade credit rating and is also complying with all the prudential
norms with capital adequacy ratio of not less than fifteen per cent as per last
audited balance sheet, then only it may accept or renew public deposit,
together with the amounts remaining outstanding in the books of the company as
on the date of the acceptance or renewal of such deposit, not exceeding one and
one half times of its NOF. [Paragraph 4(4) clause (C)]
13. Further note
that if your company is a LC or an IC which is complying with all the above
conditions and is having AAA (triple A) grade credit rating as on December 18,
1998 but not having capital adequacy ratio of fifteen per cent then only it may
accept or renew public deposit only up to the extent of not exceeding the
amount outstanding as on the aforesaid date or one and one half times of its
NOF which ever is more so long as it continues to maintain the same position of
its credit rating as above. Such a company should also bring down its public
deposit to the level as specified in paragraph 4(6) of the Directions and also
attain the capital adequacy ratio of fifteen per cent before March 31, 2000.
[Paragraph 4(4) clause (c) proviso]
14. Further note that if your company is a LC or an IC and it
complies with all the prudential norms and is having as on December 18, 1998
NOF of rupees twenty five lakhs or more and is also having AA (double A) grade
credit rating but it is not having capital adequacy ratio of fifteen per cent
or above as per last audited balance sheet it may accept or renew the public
deposit, together with the amounts outstanding in the books of the company on
the date of acceptance or renewal of such deposit not exceeding an amount
equivalent to its NOF until it attains the capital adequacy ratio of fifteen
per cent but not later than March 31, 2000 with other stipulation remaining the
same and so long it continues to maintain the same position of its credit
rating as above. [Paragraph 4(4) clause (d)]
15. Further note that if your company is a LC or an IC and it
complies with all the prudential norms and is also having as on December 18,
1998 NOF of rupees twenty five lakhs or more and is also having A (single A)
grade credit rating but is not having capital adequacy ratio of fifteen per
cent or above as per last audited balance sheet then only it may accept or
renew the public deposit, together with the amounts outstanding in the books of
the company as on the date of acceptance or renewal of such deposit not
exceeding an amount equivalent to one half of its NOF until it attains the
capital adequacy ratio of fifteen per cent but not later than March 31, 2000
with other stipulations remaining the same so long as it continues to maintain
the same position of its credit rating as above. [Paragraph 4(4) clause (e)']
16. Keep in mind that in the event of down grading of credit
rating below the minimum specified investment grade as provided in paragraph
4(4) of these Directions, it should regularise the excess deposit as provided
below. [Paragraph 4(5)]
17. Further note that if your company is an ELC or a HPFC, it
shall with immediate effect stop accepting public deposit if it is already
holding public deposit to the extent permissible as above and should also
report the position within fifteen working days to the Reserve Bank of India
and must reduce, within three years from the date of such down grading of
credit rating, the amount of excess public deposit to nil or the appropriate
extent permissible, as above, as the case may be, to which it is entitled to
accept by way of repayment as and when such deposit falls due or otherwise.
[Paragraph 4(5)(i)]
18. Note that if your company is a LC or an IC it must with
immediate effect stop accepting public deposit and report the position to the
Reserve Bank of India within fifteen working days and must reduce, within three
years from the date of such down grading of credit rating, the amount of excess
public deposit to nil by way of repayment as and when such deposit falls due or
otherwise. [Paragraph 4(5)(ii)]
19. Note that if your company holds at the close of business on
December 18, 1998 public deposit in excess of the appropriate extent to which
it is entitled to accept, as above, it should stop accepting public deposit and
also reduce, before December 31, 2001, the amount of excess public deposit to
nil or to the appropriate extent pen‑nissible under sub‑ clause
(d) or (e) of paragraph 4(4) above, as the case may be by way of repayment as
and when such deposit falls due or other wise. [Paragraph 4(6)]
20. Note that in the event of excess public deposit arising out
of the regulatory ceiling or down grading of credit rating, your company may
renew the maturing public deposit subject to the compliance of the repayment
stipulations contained in paragraphs 4(5) and (6) and other provisions of the
said directions. [Paragraph 4(6) Note]
21. Do not renew matured public deposit without the express and
voluntary consent of the depositor. [Paragraph 4(6) Note]
22. Keep in mind that the rate of interest for inviting or
accepting or renewing public deposits for your company should not exceed 12.5
per cent per annum and the interest may be paid or compounded at rests which
should not be shorter than the month rests. [Paragraph 4(7)]
23. Further keep in mind that your company should not pay to any
broker, brokerage, commission, incentive or any other benefit by whatever name
called in excess of 2 per cent of the deposit so collected by or through him.
[Paragraph 4(8)(i)]
24. Further keep in mind that your company should not pay to any
broker on public deposits collected by or through him any expenses by way of
reimbursement on the basis of relative vouchers or bills produced by him in
excess of 0.5 per cent. [Paragraph 4(8)(ii)]
25. In case your company permits any existing depositor to renew
the deposit before maturity for availing of the benefit of higher rate of
interest your company should not pay the depositor the increase in the rate of
interest provided that the deposit is renewed in accordance with the other
provisions of the said directions and for a period of longer than the remaining
period of the original contract and the interest on the expired period of
deposit is reduced by one percentage point from the rate which your company
would have ordinarily paid if the deposits have been accepted for the period
for which such deposit had run after recovering or adjusting the interest,if
any paid earlier in excess of such reduced rate. [Paragraph 4(9)]
26. Your company can also pay interest on overdue public deposits
at your company's discretion by allowing interest on an overdue public deposit
or a portion of the said overdue deposit from the date of maturity of the
deposit subject to the following conditions
(i) the total amount of overdue deposit or the part thereof is
renewed in accordance with other relevant provisions of these directions, from
the date of its maturity till some future date; and
(ii) the interest allowed shall be at the appropriate rate operative
on the date of maturity of such overdue deposit which shall be payable only on
the amount of deposit so renewed. [Paragraph 4(10)]
27. If your company fails to repay the deposits alongwith
interest on maturity on the claim made by the depositor, your company will be
liable to pay interest from the date of claim till the date of repayment at the
rate as applicable to the, deposit. [Paragraph 4(10) proviso]
28. Your company can also accept deposits in joint names with or
without any of the clauses namely, "Either or Survivor" or
"Number One or Survivor" or "Anyone or Survivor".
[Paragraph 4(11)]
29. Your company should prepare the application form for inviting
or accepting deposit from the public containing all the particulars specified
in the NonBanking Financial Companies and Miscellaneous Non‑Banking
Companies (Advertisement) Rules, 1977, made under section 58A of the Companies
Act, 1956 (1 of 1956) and also contain the specific category of the depositor,
i.e. whether the depositor is a shareholder or a director or a promoter of the
company or a member of public. [Paragraph 4(12)(i)]
30. Ensure
that the application form contains the following:
(a) The credit rating assigned for its fixed deposit and the name
of the credit rating agency which rated the company or a statement from the
management if it is an equipment leasing or a hire purchase finance company
that the quantum of public deposit held by it is not exceeding one and one half
times of its NOF or not exceeding rupees ten crores whichever is less.
(b) in case of non‑repayment of the deposit or part thereof
as per the terms and conditions of such deposit, the depositor may approach the
concerned Bench of Company Law Board whose full address is given hereunder:
Give here the full address of the Bench of the
Company Law Board under whose jurisdiction the registered office of the company
is located;
(c) in case of any deficiency of the company in servicing its
deposit, the depositor may approach the National Consumer Disputes Redressal
Forum or the Pistrict Level Consumer Disputes Redressal Forum for relief,
(d) a statement that the financial position of the company as
disclosed and the representations made in the application form are true and
correct and that the company and its Board of Directors are responsible for the
correctness and veracity thereof;
(e) the financial activities of the company are regulated by
Reserve Bank of India. It must, however, be distinctly understood that Reserve
Bank of India does not undertake any responsibility for the financial soundness
of the company or for the correctness of any of the statements or the
representations made or opinions expressed by the company; and for repayment of
deposit/discharge of liabilities by the company;
(f) at the end of application form but before the signature of
the depositor, the following verification clause by the depositor should be
appended. "I have gone through the financial and other
statements/particulars/ representations furnished/made by the company and after
careful consideration I am making the deposit with the company at my own risk
and volition.
(g) the information relating to and the aggregate dues from the
facilities both fund & non‑fund based extended to and the aggregate
dues from companies in the same group or other entities or business ventures in
which the directors and/or the non‑banking financial company are holding
substantial interest and the total amount of exposure to such entities.
[Paragraph 4(12)(ii)]
31. Obtain proper introduction of the new depositors before
opening their accounts and accepting the deposits and keep on your company's
record, the evidence on which your company has relied upon for the purpose of
such introduction. [Paragraph 4(12)(iii)]
32. Once your company decides on the above issues hold a Board
meeting after giving notice to all the directors of the company as per section
286 and decide about the inviting or renewing of deposits.
33. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1,000/‑.[Section 286(2)]
34. Publish the advertisement in a leading English newspaper in
English language and in one vernacular newspaper in vernacular language
circulating in the State in which the registered office of the company is
situated.
35. Before publication file a copy of the advertisement signed by
the majority of directors with the Regional Office of the Non‑Banking
Companies of the Reserve Bank of India within whose jurisdiction the registered
office of the company is situated. [Rule 5 of the Non‑Banking Financial
Companies and Miscellaneous Non‑Banking Companies (Advertisement) Rules,
1977]
36. The advertisement must contain a reference to the conditions
subject to which deposits will be accepted and the date on which the Board of
Directors of your company has approved the advertisement and the following
information:
(a) The
name of the company;
(b) The
date of incorporation of the company;
(c) The business carried on by the company and its subsidiaries
with the details of branches or units, if any;
(d) Brief
particulars of the management of the company;
(e) Names,
addresses and occupation of directors;
(f) Profits of the company before and after making provision for
the tax for the three financial years immediately preceding the date of
advertisement;
(g) Dividends
declared by the company in respect of the said years;
(h) A summarised financial position of the company as in the two
audited balance‑sheets immediately preceding the date of advertisement in
the form prescribed in the Non‑Banking Financial Companies and
Miscellaneous Non‑Banking Companies (Advertisement) Rules, 1977;
(i) The amount which the company can raise by way of deposits
under the directions and the aggregate of deposits actually held on the last
day of immediately preceding financial year;
(j) A statement to the effect that on the day of the
advertisement, the company has no overdue deposits other than unclaimed
deposits or a statement showing the amount of such overdue deposits, as the
case may be;
(k) A
declaration to the effect:-
(i) that the company has complied with the provisions of the
directions applicable to it;
(ii) that the compliance with directions does not imply that
repayment of deposits is guaranteed by the Reserve Bank of India; and
(iii) that the deposits accepted by the company (other than secured'
deposits, if any, accepted under the provisions of the directions, the
aggregate amount of which may be indicated) are unsecured and ranking pari
passu with other unsecured liabilities. [Rule 3(2) of the Non‑Banking
Financial Companies and Miscellaneous Non‑Banking Companies
(Advertisement) Rules, 1977]
37. Ensure that in every advertisement soliciting public deposit
the following should be specified in addition to the above:
(a) the actual rate of return by way of interest, premium, bonus
other advantage to the depositor;
(b) the
mode of repayment of deposit;
(c) maturity
period of deposit;
(d) the
interest payable on deposit;
(e) the rate of interest which will be payable to the depositor
in case the depositor withdraws the deposit prematurely;
(f) the
terms and conditions subject to which a deposit will be renewed; and
(g) any other special features relating to the terms and
conditions subject to which the deposit is accepted/renewed.
(h) the information, relating to the aggregate dues (including
the non‑fund' based facilities provided to) from companies in the same
group or other entities or business ventures in which, the directors and/or the
NBFC are holding substantial interest and the total amount of exposure to such
entitles. [Paragraph 4(13)(i)]
38. Issue receipt, duly signed by an authorised officer
containing the prescribed details, such as date of deposit, the name of the
depositor, the amount of deposit, the rate of interest payable on deposit and
the date on which deposit is repayable.
39. Make entries in the Register of Deposits maintained for the
purpose and containing the prescribed particulars, as given in paragraph
4(16)(i).
40. Keep in mind that the Register of Deposits to be maintained
as above should be kept at each branch in respect of the deposit accounts
opened by that branch of the company and a consolidated register for all the
branches taken together at the registered office of the company and shall be
preserved in good order for a period of not less than eight calendar years
following the financial year in which the latest entry is made of the repayment
or renewal of any deposit of which particulars are contained in the register.
[Paragraph 4(16) (ii)]
41. Further keep in mind that if the company keeps the books of
account feferred to in sub‑section (1) of section 209 of the Companies
Act, 1956 (1 of 1956) at any place other than its registered office in
accordance with the proviso to that sub‑section, it shall be deemed to be
sufficient compliance with this clause if the register aforesaid is kept at
such other place, subject to the condition that the company delivers to the
Reserve Bank of India a copy of the notice filed with the Registrar of
Companies under the proviso to the said sub‑section within seven days of
such filing. [Paragraph 4(16)(ii) proviso]
42. Do not open your company's branch or appoint agents to
collect deposits within the State of your registered office unless your
company's NOF is upto Rs. 50 crore. [Paragraph 4A]
43. Do not open your company's branch or appoint agents to
collect deposits any where in India unless your company's NOF is more than Rs.
50 crores and your company's credit rating is AA or above. [Paragraph 4A.]
44. Notify to the Reserve Bank of India (RBI) your company's
intention to open the proposed branch and if within 30 days from the date of
receipt of such communication no advice of rejection of the said proposal is
received by your company from the RBI, your company may proceed with the
proposal [Paragraph 4A]
45. Do not close any of your company branch or office opened as
aforesaid without publishing such intention in any one national level newspaper
and in one vernacular newspaper in circulation in the relevant place and
without advising the RBI before 90 days of the proposed closur. [Paragraph 4B]
46. Designate one of the Scheduled Commercial Banks as your
company's designated banker in the place where your company's registered office
is situated and intimate in writing to the regional office of the Reserve Bank
of India under whose jurisdiction the registered office of your company is
situated and entrust to such bank the unencumbered approved securities required
to be maintained by it in pursuance to section 45‑IB of the Reserve Bank
of India Act, 1934 (2 of 1934).
47. Where your company intends to entrust these securities to
Stock Holding Corporation of India Ltd. or to its designated banker at a place
other than the place at which its registered office is located or to keep them
in the form of Constituents Subsidiary General Ledger Account with a Scheduled
Commercial Bank, or with a depository participant registered with SEBI, obtain the
prior approval, in writing, of regional office of RBI under whose jurisdiction
the registered office of the companv is situated, as specified in the Second
Schedule of these directions. [Paragraph 6(1) proviso]
48. Ensure that the securities mentioned above continued to be
entrusted to the designated bank for the benefit of the depositors and do not
withdraw or encash or otherwise deal with such securities except for repayment
to the depositors. [Paragraph 6(2)]
49. Your company may withdraw a portion of such securities
proportionate to the reduction of your public deposits duly certified to that
effect by your company's auditor.
50. If your company intends to substitute such securities it may
do so by entrusting substitute securities of equal value to the designated bank
before such withdrawal.
51. File a copy of audited balance‑sheet and profit and
loss account as on the last date of each financial year together with a copy of
the Report of the Board of Directors as laid before the General Meeting of the
company, within fifteen days of such meeting, to the Regional Office of the
Department of Non‑Banking Supervision of the Reserve Bank of India within
whose jurisdiction the registered office of the company is situated. [Paragraph
8(1) & (5)]
52. Furnish to the Reserve Bank of India along with a copy of the
audited balance sheet, as mentioned above, a copy of the auditors report to the
Board of Directors and a certificate from the auditors to the effect that the
full amount of the liabilities to the depositors of your company including
interest payable thereon properly reflected in the balance sheet and that your
company is in a position to meet the amount of such liabilities to the
depositors. [Paragraph 8(2)]
53. File return furnishing the information specified in First
Schedule to the Directions on the dates mentioned therein. [Paragraph 8(3)]
54. Ensure to inform the Reserve Bank of India any change
occurring in the following matters within one month from the date of change:
(i) the complete postal address, telephone number/s and fax
number/s of the registered/corporate office;
(ii) the
names and residential addresses of the directors of the company;
(iii) the
names and the official designations of its principal officers;
(iv) the specimen signatures of the officers authorised to sign on
behalf of the company; and
(v) the names and office address of the auditors of the company
[Paragraph 8(4)].
55. If the shares of your company are listed on a recognised
Stock Exchange forward promptly to the Stock Exchange three copies of the
advertisement mentioned in item 31. [Clause 31(e) of the Standard Listing
Agreement]
56. File also quarterly returns in duplicate within a period of
fifteen days of the month succeeding the quarter to which it, relates in the
form given in Reserve Bank of India (Non‑Banking Financial Companies)
Returns Specifications, 1997 with the Regional Office of the Department of
Supervision (Financial Companies Wing) of Reserve Bank of India under whose
jurisdiction the registered office of the NBFC is situated.
57. Ensure that the contents of the aforesaid quarterly return
are certified and signed by the authorised official of your company to be true
and correct.
58. Keep in mind that in terms of section 45‑IA of the
Reserve Bank of India Act 1934 no NBFC can commence or carry on the business of
Non‑Banking Financial Institutions without obtaining a certificate of
registration issued by the RBI and without having NOF of Rs. 25 lakhs or such
other amount not exceeding Rs. 200 lakhs.
59. Further keep in mind that NBFCs having NOF below Rs. 25 lakhs
have been given a period of 3 years for attaining the minimum NOF, under
section 45‑IA(4) of the Reserve Bank of India 1934. This period can be
further extended by 3 more years at the discretion of the RBI.
60. Note that nothing contained in paragraphs 4 to 7 of the above
mentioned directions will apply to an NBFC being a Government company as
defined under section 617 of the Companies Act, 1956. [Paragraph 9A].
61. Further note that NBFCs are also to file with RBI every
quarter a new return called "Supervisory and Monetary Return" in a
new format prescribed by RBI only if they are holding public deposits of Rs. 20
crores and above. [Source: Economic Times, dated 28‑11‑2000]
Topic 272
[Non‑Banking Financial Companies Prudential
Norms (Reserve Bank) Directions 1998]
1. Check whether your company is either a non‑banking
financial company with net owned fund of Rs. 25 lakhs or more or a residuary
non‑banking company.
2. If so then ensure that your company submits a half yearly
return within three months of the expiry of the relative half year as on
September and March every year commencing from the half year ending March 31,
1998 in the format annexed to the Non‑Banking Financial Companies
Prudential Norms (Reserve Bank) Directions, 1998 to the regional office of the
Department of Non‑Banking Supervision of the Reserve Bank of India under
whose jurisdiction the registered office of your company is located. [Paragraph
13 of the said Directions]
3. Before filing the half yearly return, as aforesaid, keep in
mind the following norms in treating an asset as a Non‑Performing Asset
(NPA):
(i) an
asset, in respect of which, interest has remained past due for six months;
(ii) a term loan inclusive of unpaid interest, when the instalment
is overdue for more than six months or on which interest amount remained past
due for six months;
(iii) a
bill which remains overdue for six months;
(iv) the interest in respect of a debt or the income on receivables
under the head 'on current assets' in the nature of short term loans/advances,
which facility remained overdue for a period of six months;
(v) any dues on account of sale of assets or services rendered or
reimbursement of expenses incurred, which remained overdue for a period of 6 months;
(vi) the lease rental and hire‑purchase instalment, which has
become overdue for a period of more than twelve months;
(vii) in respect of loans, advances and other credit facilities
(including bills purchased and discounted), the balance outstanding under the
credit facilities (including credit interest) made available to the same
borrower/beneficiary when any of the above credit facilities becomes non‑performing
asset:
Provided that in the case of lease and hire
purchase transactions, your company may classify each such account on the basis
of its record of recovery. [Paragraph 2(xii) of the said Directions]
4. Before filing the half yearly return, as aforesaid, keep in
mind the following while recognising any income:
(i) the
income recognised should be based on recognise accounting principles;
(ii) income including interest/discount or any other charges on
NPA shall be recognised only when it is actually realised. Any such income
recognised before the asset become non‑performing and remaining
unrealised shall be reversed;
(iii) in respect of hire‑purchase assets, where instalments
are overdue for more than 12 months, income shall be recognised only when hire
charges are actually,received. Any such income taken to the of profit and loss
account before the asset become non‑performing and remaining unrealised,
shall be reversed;
(iv) in respect of lease assets, where a lease rentals are overdue
for more than 12 months, the income shall be recognised only when lease rentals
are actually received. The net lease rentals taken to the credit of profit and
loss account before the asset became non‑performing and remaining
unrealised shall be reversed;
(v) "net lease rentals" means gross lease rent als as
adjusted by the lease adjustment account debited/credited to the profit and
loss account and as reduced by depreciation at the rate applicable under
Schedule XIV of the Companies Act, 1956. [Paragraph 3 of the said Directions]
5. Before filing the half yearly return as aforesaid further
keep in mind the following while taking into account income from investments:
(i) income from dividend on shares of corporate bodies and units
of mutual funds shall be taken into account on cash basis;
(ii) take the income from dividend on shares of corporate bodies also
into account on accrual basis when such dividend has been declared by the
corporate body in its annual general meeting and your company's right to
receive payment is established;
(iii) income from bonds and debentures of corporate bodies and from
Government securities/bonds may be taken into account on accrual basis:
Provided that the interest rate on these
instruments is predetermined and interest is serviced regularly and is not in
arrears;
(iv) income on securities on corporate bodies or public sector
undertakings, the payment of interest and repayment of principal of which have
been guaranteed by Central Government or a State Government may be taken into
account on accrual basis. (Paragraph 4 of the said Directions]
6. Before filing the half yearly return as aforesaid keep in
mind the following norms in accounting for investments:
(i) Investments in securities shall be classified as current and
long term investments.
(ii) Quoted current investments shall, for the purposes of
valuation, be grouped into the following categories, viz.
(a) equity
shares,
(b) preference
shares,
(c) debentures
and bonds,
(d) Government
securities, including treasury bills,
(e) units
of mutual fund, and
(f) others.
(iii) Quoted current investments for each category shall be valued
at cost or market value whichever is lower.
(iv) The investments in each category shall be considered scrip‑wise
and the cost and market value aggregated for all investments in each category.
(v) If the aggregate market value for the category is less than
the aggregate cost for that category, the net depreciation shall be provided
for or charged to the profit and loss account.
(vi) If the aggregate market value for the category exceeds. the
aggregate cost for the category, the net appreciation shall be ignored.
Depreciation in one category of investments shall not be set off against
appreciation in another category.
(vii) Unquoted equity shares in the nature of current investments
shall be valued at cost or break up value, whichever is lower. However, NBFCs
may substitute fair value for the break up value of the shares, if considered
necessary. Where the balance sheet of the investee company is not available for
two years, such shares shall be valued at one rupee only.
(viii) Unquoted preference shares in the nature of current investments
shall be valued at cost or face value, whichever is lower.
(ix) Investments in unquoted Government securities or Government
guaranteed bonds shall be valued at carrying cost.
(x) Unquoted investments in the units of mutual funds in the
nature of current investments shall be valued at the net asset value declared
by the mutual fund in respect of each particular scheme.
(xi) Commercial
papers shall be valued at carrying cost.
(xii) A long term investment shall be valued in accordance with the
accounting standard issued by ICAI.
(xiii) Unquoted debentures shall be treated as term loans or other
type of credit facilities depending upon the terure of such debentures for the
purpose of income recognition and asset classification.
7. Before filing the half yearly return as aforesaid keep in
mind the following norms for asset classification after taking into account the
degree of well‑defined credit weaknesses and extent of dependence on
collateral security for realisation:
(i) Classify lease/hire‑purchase assets, loans and
advances and any other forms of credit into four groups, namely
(a) Standard
assets,
(b) Sub‑standard
assets,
(c) Doubtful
assets, and
(d) Loss
assets;
(ii) While classifying asset as standard asset keep in mind that
there is no perceivable default in repayment of principle or payment of
interest in respect of those assets do not disclose any problem nor carry more
than normal risk attached to the business;
(iii) While
classifying asset as sub‑standard asset keep in mind the following:
(a) an asset, which has been classified as non‑performing
asset for a period of not exceeding two years,
(b) an asset, where the terms of the agreement regarding interest
and/or principal have been renegotiated or rescheduled after commencement of
operations, until the expiry of one year of satisfactory performance under the
renegotiated or rescheduled terms;
(iv) While
classifying asset as doubtful asset keep in mind the following:
(a) a
term loan, or
(b) a
lease asset, or
(c) a
hire‑purchase asset, or
(d) any other asset, which remains a sub‑standard asset for
a period exceeding two years;
(v) While
classifying asset as loss asset keep in mind the following:
(a) an asset which has been identified as loss asset by the NBFC
or its internal or external auditor or by the Reserve Bank of India during the
inspection of the NBFC, to the extent it is not written off by the NBFC, and
(b) an asset which is adversely affected by a potential threat of
nonrecoverability due to either erosion in the value of security or non‑availability
of security or due to any faudulent act or omission on the part of the
borrower.
8. Before filing the half yearly return, as aforesaid, keep in
mind the following norms while making provisioning requirements:
(i) take into account the time lag between an account becoming
nonperforming and its recognition as such and also the recognition of the
security and the erosion over time in the value of security charged;
(ii) for loss assets being loans, advaitces, and other credit
facilities including bills purchased and discounted the entire asset should be
written off if the assets are permitted to remain in the books for any reasons
by providing 100% of the outstandings;
(iii) if doubtful asset being also loans, advances and other credit
facilities including bills purchased make 100% provision to the extent to which
the advance is not covered by the realisable value of the security to which
your company is a valid recourse after estimating realisable value on a
realistic basis;
(iv) in addition to aforesaid depending upon the period for which
any particular asset has remained doubtful, make a provision to the extent of
20% to 50% of the secured portion being estimated realisable value of the
outstandings on the following basis:
|
Periodfor which the asset has been considered as doubtful |
% ofprovision |
|
Upto one year |
20 |
|
One to three years |
30 |
|
More than three years |
50 |
(v) in case of sub‑standard assets make a general provision
of 10% of total outstandings;
(vi) in
respect of hire‑purchase assets make provision in the following manner:
(a) the total dues including overdue and future instalments taken
together to be reduced by the following:
(1) the finance charges not credited to the profit and loss
account and carried forward as unmatured finance charges,
(2) the depreciation value or net realisable value of the
underlying asset whichever is lower,
(3) compute the depreciated value of the asset notionally as the
original cost of the asset after reducing it by depreciation at the rate of 20%
per annum on a straight line method;
(vii) in respect of hire purchase and leased assets, make additional
provision in the following manner:
(a) where any amount of hire charges or lease rentals are overdue
upto 12 months, Nil;
(b) where any amount is overdue for more than 12 months but upto
24 months, 10% of the net book value;
(c) where any amount is overdue for more than 24 months but upto
36 months, 50% of the net book value;
(d) where any amount is overdue for more than 36 months '4100% of
the net book value;
(viii) on expiry of a period of 12 months after due date of the last
instalment of hire‑purchase/leased asset, the entire net book value
should be fully provided for. [Paragraph 8 of the Directions]
9. Note that all financial leases written on or after April, 1,
2001 attract the provisioning requirements as applicable to hire‑purchase
assets.
10. Before filing the half‑yearly return, as aforesaid,
keep in mind the following capital adequacy norms:
(i) maintain a minimum capital ratio consisting of Tier‑I
and Tier‑II which shall not be less than 10% on or before 31st March,
1998 and 12% on or before 31st March, 1999 of its aggregate risk weighted
assets and of risk adjusted value of aforesaid items;
(ii) ensure that the total of Tier‑11 capital at any point
of time does not exceed 100% of Tier‑I capital;
(iii) take under Tier‑I capital, your company's own funds
after deducting from it the following:
(a) investment
in shares of other NBFCs;
(b) investment in shares, debentures, bonds, outstanding loans
and advances including hire‑purchase and lease finance made to and
deposits with subsidiaries and companies in the same group exceeding in
aggregate 10% of the own fund of your company;
(iv) take
under Tier‑II capital the following:
(a) preference shares other than those which are compulsorily
convertible into equity;
(b) revaluation
reserves at discounted rate of fifty five per cent;
(c) general provisions and loss reserves to the extent these are
not attributable to actual diminution in value or identifiable potential loss
in any specific asset and are available to meet unexpected losses, to the
extent of one and one fourth per cent of risk weighted assets;
(d) hybrid
debt capital instruments; and
(e) subordinated debt to the extent the aggregate does not exceed
Tier‑I capital. [Paragraph 10 read with paragraph 2(xix) and (xx) of the
Directions]
11. Ensure that your company does not lend against its own share
and if there is any outstanding loan granted by your company against its own
share on the date of commencement of the said directions being 31st January,
1998 your company should recover those loans as per the repayment schedule.
[Paragraph 11 of the Directions]
12. Ensure that your company being an equipment leasing company
or hire purchase finance company which is accepting public deposit does not
invest in land or building an amount exceeding ten per cent of your company's
own fund except for your company's own use and also does not invest in unquoted
shares of another company which is not a subsidiary company or a company in the
same group of your own an amount exceeding ten per cent of your company's own
fund. [Paragreph 11B(i) of the Directions].
13. Further ensure that your company being a loan or an
investment company which is accepting public deposit does not invest in land or
building an amount exceeding ten per cent of your company's own fund except for
your company's own use and also does not invest in unquoted shares of another
company which is not a subsidiary company or a company in the same group of
your own an amount exceeding twenty per cent of your company's own fund.
[Paragraph 11 B(ii) of the Directions] .
14. Keep in mind that if your company's investments in the
aforesaid assets together with the assets already held by your company exceeds
the above mentioned ceilings your company should dispose of these assets
acquired in satisfaction of your company's debts within a period of three years
or within such period as extended by the Reserve Bank of India from the date of
their acquisition. [Paragraph 11B(ii) 1st proviso of the Directions].
15. Also keep in mind that if your company holds land or building
or unquoted shares in excess of the ceilings specified in items 12 and 13 above
as on December 18, 1998, your company must dispose them of within three years
from such date or within such period as extended by the Reserve Bank of India
so as to bring down your company's holding of those assets within the
stipulated ceiling. [Paragraph 11 B(ii) 2nd proviso of the Directions].
16. Further keep in mind that while calculating the ceiling on
investment in unquoted shares investments in such shares of all companies
should be aggregated. [Paragraph 11B(ii) 2nd proviso Explanation of the
Directions]
17. Note that the ceiling specified in items 12 and 13 on the
investment in unquoted shares shall not be applicable to an equipment leasing
company or a hirepurchase finance company or a loan company or an investment
company in respect of investment in the equity capital of an insurance company
up to the extent specifically permitted, in writing, by RBI. [Paragraph 11B
proviso]
18. Ensure that your company does not lend to any single borrower
exceeding 15% of its own fund or to any single group of borrowers exceeding 25%
of its own fund. [Paragraph 12(1)(i) of the Directions]
19. Further ensure that your company does not invest in the
shares of another company exceeding 15% of its own fund or in the shares of a
single group of companies exceeding 25% of its own fund. [Paragraph 12(1)(ii)
of the Directions]
20. Further ensure that your company does not lend and invest
being loans and investments taken together exceeding 25% of its own fund to a
single party and 40% of its own fund to a single group of parties. [Paragraph
12(1)(iii) of the Directions]
21. Keep in mind that the above ceiling on the investment in
shares of another company shall not be applicable to an NBFC in respect of
investment in the equity capital of an insurance company up to the extent
specifically permitted in writing by RBI. [Paragraph 12(1) Second Provisolo]
22. If your company has already granted loans and already made
investment in excess of ceilings specified aforesaid and exceeding on 31st
January, 1998 they shall be brought down by your company as per the repayment
schedule in due course. [Paragraph 12(2) of the Directions]
23. Keep in mind that while determining the above mentioned
limits, off balance‑sheet exposure should be converted into credit risk
by applying the conversion factors explained as under-
|
Nature of Item |
Credit Conversion Factor Percentage |
|
(i) Finance &
other guarantees |
100 |
|
(ii)
Share/debenture underwriting obligations |
50 |
|
(iii), Partly paid
shares/debentures |
100 |
|
(iv) Bills
discounted/rediscounted |
100 |
|
(v) Lease contracts
entered into but yet to be executed |
100 |
|
(vi) Other
contingent liabilities (To be specified) |
50 |
24. Further keep in mind while determining the above mentioned
limits the investment in debentures for the above purpose be treated as credit
and not investment.
25. Note that the above mentioned ceilings on credit investments
will be applicable to the own group of your company as well as to the other
group of borrowers/investee companies.
26. Ensure that your company discloses in its balance sheet the
provision made on loans, advances and other credit facilities including bills
purchased and discounted and also for lease and hire‑purchase assets as
mentioned in item 8. [Paragraph 9(1) of the Directions]
27. Further ensure that your company indicates the aforesaid
provisions under separate head of accounts in the balance‑sheet as
provisions for bad and doubtful debts and provisions for depreciation in
investments. [Paragraph 9(2) of the Directions]
28. Further ensure that these provisions are not appropriated
from the general provision and loss reserves held, if any, by your company.
[Paragraph 9(3) of the Directions]
29. Further ensure that the provisions as aforesaid are debited
to the profit and loss account of your company for each year and the excess
provisions, if any, held under the heads general provisions and loss reserves
are written back without making adjustment against them. [Paragraph 9(4) of the
Directions]
30. If your NBFC is having the asset of Rs. 50 crores and above
as per your last audited balance‑sheet then constitute an Audit Committee
consisting of not less than 3 members of its Board of Directors. [Paragraph 9A]
31. Ensure that your NBFC's balance‑sheet and profit and loss
account is prepared as on March 31 every year with effect from the accounting
year ending with 31st March,
2001 and if the accounting year of your company ends on any date other than
31st March, 2001 then prepare your company's balance‑sheet and profit and
loss account for any fraction of the year ending on 31st March, 2001.
[Paragraph 9B]
32. Keep in mind that the Audit Committee as mentioned above is
constituted as required under section 292A of the Companies Act, 1956, shall be
the Audit Committee for the purposes of paragraph 9A. [Paragraph 9A,
Explanation I]
33. Further keep in mind that the aforesaid Audit Committee of
your NBFC Company shall have the same powers, functions, and duties as laid
down in section 292A of the Companies Act, 1956. [Paragraph 9A, Explanation II]
34. Note that requirements as to capital adequacy and
concentration of credit/investment will not apply to a loan company and
investment company or hire‑purchase finance company and equipment leasing
company which is having NOF of Rs. 25 lakhs and above but has not accepted or
held any public deposit. [Paragraph 1(3)(ii) of the Directions]
35. Further note that the provisions of the said directions will
not apply to a NBFC being an investment company if it holds investment in the
securities of its group/holding/subsidiary companies and book value of such
holding is not less than 90% of its total assets and it is not trading in such
securities and the said company is not accepting or holding any public deposit.
[Paragraph 1(3)(iii) of the Directions]
36. Also note that the provisions of the said directions will not
apply to a NBFC being a government company as defined under section 617 of the
Companies Act, 1956. [Paragraph 1(3) (iv)]
37. Keep in mind that your company being an NBFC cannot grant any
loan or other credit facility or make investments or create any other asset as
long as the default in repayment of public deposits in accordance with the
provisions of section 45QA(1) of RBI Act exists. [Paragraph 11A of the Directions].
Topic 273
DO YOU WISH TO GET DEPOSITS BY PRIVATE
PLACEMENTS AND CONFIDENTIAL OFFERS?
1. Please note Section 58A is attracted only if the invitation
or acceptance is from the public.
2. Also note that if the deposits are accepted only from
friends, relatives and associates Section 58A is not attracted.
3. However, Department of Company Affairs considers that the
acceptance of deposits from the employees is also acceptance of deposits from
the public.
4. Send the application form, only on request voluntarily made
by any person for depositing money with the company. Such requests shall be on
record.
5. Mark the application form as private and confidential. Also
specify the name of the person who has made the request, in the application
with the clear warning that the form cannot be made available to a third
person.
6. Include in the application form all the particulars in
accordance with the requirements of sub‑rule (2) of Rule 4 of the
Companies (Acceptance of Deposits) Rules, 1975,[Rule 5(2)]
7. Ensure that the application forms of deposits of your
company also contain a clause giving proposed holders of fixed deposit either
proposing to hold singly or jointly, freedom to nominate a person to whom his
or their deposits will vest in the event of his or their death. [Section
58A(11)].
8. Convene a Board Meeting after giving notice to all the
directors of the company as per Section 286 approving the text of the statement
in lieu of advertisement. [Rule 4A of the Companies (Acceptance of Deposits)
Rules, 1975]
9. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1,000/‑. [Section 286(2)]
10. Before accepting the deposits deliver to the Registrar of
Companies a statement in lieu of advertisement containing all the particulars
as if the said statement is an advertisement within the meaning of sub‑rule
(2) of Rule 4 of the Companies (Acceptance of Deposits) Rules, 1975.
11. The statement referred to in item 10 above should be signed
by' a majority of the directors on the Board of Directors of the company who
approved the statement in the meeting called in this behalf.
12. Since the above procedure may pose some difficulty due to
temporary absence of directors or due to resignation, death eic., it would be
advisable for the Board, while approving the statement, to authorise some other
officer of the company to sif n the statement for delivery to and registration
with the Registrar of Companies .
13. Issue receipt with revenue stamp of Re. I/‑ affixed
thereon if the deposit is for more than Rs. 500/‑ and indicate clearly on
the back of the receipt the terms and conditions of acceptance of deposit
including the fact that the deposit has been tendered voluntarily.
14. Please keep in mind that your company cannot accept deposit
by private placement and confidential offers if your company has defaulted in
the repayment of any deposit or part thereof and any interest thereupon in accordance
with the terms and conditions of such deposit. [Section 58A(2)(c)].
15. Note that provisions of section 58A will not apply to Small
Scale Industrial Units which fulfill the following conditions :-
(a) The
paid‑up capital of the company does not exceed Rs. 25 lakhs;
(b) The
company accepts deposits from not more than 100 persons;
(c) There
is no invitation to public for deposits; and
(d) The amount of deposits accepted by the company does not
exceed Rs. 20 lakhs or the amount of its paid‑up capital, whichever is
less.
16. Transfer the amount of matured deposits of your company along
with interest accrued thereon remaining unclaimed and unpaid for a period of
seven years from the date they became due for payment to the Investor Education
and Protection Fund established under section 205C. [Section 205C(2)(c) and (e)
read with its proviso].
17. Note that if your company's paid‑up share capital is
less than Rs. 50 lakhs but is equal to or more than Rs. 10 lakhs, your company
is required to obtain a Compliance Certificate from a secretary in whole‑time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company has complied with the provisions of sections 58A and 58AA
read with the Companies (Acceptance of Deposit) Rules, 1975/the applicable
directions issued by the Reserve Bank of India/any other authority in respect
of deposits accepted including unsecured loans taken, amounting to the
specified amount raised by the company during the year and the company has
filed the copy of statement in lieu of advertisement and necessary particulars
as required with the Registrar of Companies on a specified date and the company
has also filed return of deposit with the Register of Companies/Reserve Bank of
India/other authorities as per paragraph 23 of the Form of Compliance
Certificate appended to the Companies (Compliance Certificate) Rules, 2001.
[Section 383‑A(1) proviso]
Topic 274
DO YOU WISH TO COMPLAIN TO THE COMPANY
LAW BOARD AGAINST FAILURE TO REPAY DEPOSITS?
1. Note that Sub‑section (3A) of Section 58A makes it
obligatory on the part of the company to repay any deposit accepted after 15th
June, 1988, unless the accepted deposit, instead of being repaid, has been
renewed by the company.
2. Note that Sub‑section (9) confers a right, even on a
single depositor, to make application to the Company Law Board, requesting the
Company Law Board to direct the company to make repayment of the deposits.
3. Sub‑section (9) does not make any distinction between
a deposit accepted prior to 15th June, 1988, whose repayment has not been made
statutorily obligatory and a deposit accepted after 15th June, 1988, whose
repayment has been statutorily obligatory under Sub‑section (3A).
4. Sub‑section (9), if harmoniously construed along with
Sub‑section (3A), does not seem to apply to deposits accepted prior to
15th June, 1988.
5. Note that payment of interest voluntarily by the company on
over‑due deposits amounts to renewal of the deposits but a prayer to the
Company Law Board for a direction to pay interest on an overdue interest will
not amount to renewal, if the Company Law Board so directs.
6. In the application to be made to the Company Law Board,
necessary documentary evidence should be attached showing the date of deposit,
the amount deposited and the terms and conditions under which the deposits have
been accepted and further showing that the deposit has not been paid by the
company in accordance with the terms and conditions under which the deposits
had been accepted.
7. In the application before the Company Law Board, make it
clear that in case the Company Law Board directs repayment of deposit in
instalments, there should be necessary direction for payment of interest.
8. While drawing up the application, follow the procedurel for
making the application under Sub‑section (9) of Section 58A as laid down
by the Company Law Board as given below:-
(a) Make the application in duplicate in Form No. 41 given in
Annexure II of the Company Law Regulations, 1991 and address it to the Bench
Officer, Company Law Board, either Northern Region Bench, New Delhi or Eastern
Region Bench, Calcutta, Western Region Bench, Mumbai or Southern Region Bench,
Chennai, as the case may be, depending on the jurisdiction of one of the four
benches on the State or Union Territory in which the registered office of the
concerned company is situated. [Regulation 37 read with Regulation 7(2) and
Annexure I of the Company Law Board Regulations, 1991]
(b) Attach to the application a demand draft of Rs. 50/‑ as
application fee which should be drawn in favour of the "Pay and Accounts
Officer, Department of Company Affairs, New Delhi/Calcutta/Mumbai/ Chennai, as
the case may be, depending on which regional bench of the Company Law Board,
the said application is filed.
(c) Attach
to the application, the following:
(i) Copy
of the deposit receipt.
(ii) Copy
of the correspondence exchanged with the company.
9. It is not necessary to engage any lawyer or other person to
represent the case before the Company Law Board. The depositor himself may
appear before the Company Law Board.
10. Affix court fee stamps of the requisite value' on the
original application before filing.
11. Keep in mind that, for making this application no affidavit
verifying the application is required to be made.
12. Also keep in mind that even non‑banking financial
companies can make an application to the Company Law Board for non‑payment
of deposits.
13. Further keep in mind that whoever fails to comply with any
order made by the Company Law Board under sub‑section (9) of section 58A
will be punishable with imprisonment upto 3 years and will also be liable to a
fine upto Rs. 500/‑ for every day during which such non‑compliance
continues. [Section 58A(10)]
14. If you are a small depositor that is if your deposit does not
exceed Rs. 20,000/‑ in a financial year then wait for the appropriate
order made by the Company Law Board within a period of 30 days from the date of
receipt of intimation made by the company concerned within 60 days from the
date of default in repayment of any deposit or part thereof to small
depositors. [Section 58AA(2) & (3)]
15. Keep in mind that it will not be necessary for you being a
small depositor to be present at the hearing of the providing taken under the aforesaid
provision. [Section 58AA(3)(b) second proviso]
Topic 275
1. Note that a company is statutorily entitled to be heard by
the Company Law Board in a proceeding before it pertaining to non‑payment
of deposits, whether initiated on the complaint of a depositor or suo moto by
the Company Law Board itself
2. Note that a notice will be issued by the Company Law Board
giving opportunity to the company to make representation to the Company Law
Board.
3. On receipt of the notice, make written submissions in the
prescribed formt and also attend the hearing through your own officers,
practising company secretary or chartered accountant or cost accountant or a
lawyer.
4. Note that the Company Law Board can give relief by ordering
payment of deposit in instalments, if the financial condition of the company do
not permit immediate repayment of overdue deposits.
5. For the above purpose, it would be necessary to present
before the Company Law Board sufficient data and information to show the
financial condition of the company.
6. In case you have any particular scheme in view whereby you
may repay the deposits, the said scheme should form part of the representation
before the Company Law Board.
7. The Company Law Board may as well accept the scheme and
order repayment by including the matters in the scheme as conditions subject to
which repayment may be made.
8. The Company Law Board may allow deposit to be made by the
directors or their relatives for purpose of making repayment.
9. Please check if you are a relief undertaking within the
meaning of the concerned State Act and further check if your undertaking is
still covered by a notification issued by the State Government.
10. In case you are covered by the relevant notification, you can
ask for stay of the proceedings filed by any depositor before the Company Law
Board [Circular No. 3 of 1990, dated 19‑2‑1990]
Topic 276
DO YOU WISH TO ISSUE COMMERCIAL PAPER?
[Guidelines for Issue of Commercial Paper' issued
by the Industrial and Export Credit Department, RBI, dated 10‑10‑2000
as amended by Notification No. IECD/2/08.15.01/2000‑01, dated 10‑4‑2001
and Notification No. IECD/2/08.15.01/ 2001‑02, dated 23‑7‑2001]
1. Please ensure that your company being a corporate or a
primary dealer or a satellite dealer or an all India Financial Institution
satisfies, the following requirements for being eligible to issue commercial
paper for raising short terrn resources under the umbrella limit fixed by RBI:
(a) Your company's tangible net worth should not be less than Rs.
4 crores as per your company's latest audited balance‑sheet.
(b) Your company has been sanctioned working capital limit by banks
or all India Financial Institutions.
(c) Your company should obtain specified credit rating of P2
Certificate from CRISIL or A2 Certificate from ICRA or PR‑2 from CARE or
FITCH Ratings India Private Ltd., or such other credit rating agency as may be
specified by the Reserve Bank of India from time to time at the time of issue
of commercial paper and your company should ensure that the said rating is
current and has not fallen due for review.
(d) Your company's borrowal account should be classified as a
standard asset by financing bank or bank or institution.
2. The tangible net worth means the paid up share capital plus
free reserves (including balances in the share premium account, capital and
debenture redemption reserves and any other reserve not being created for
repayment of any future liability or for depreciation in assets or for bad
debts or reserve created by revaluation of assets) as per the latest audited
balance‑sheet of the company, as reduced by the amount of accumulated
balance of loss, balance of deferred revenue expenditure as also other
intangible assets.
3. Please also ensure that the commercial paper proposed to be
issued has the following
(a) The minimum and maximum period of issuance of commercial
paper should be between a minimum of fifteen days and maximum up to one year
from the date of issue and the maturity date should not go beyond the date up
to which the aforesaid credit rating of your company is valid.
(b) The denomination of commercial paper should be Rs. 5 lakhs or
multiples of Rs. 5 lakhs and the amount to be invested by any single investor
shall not be less than Rs. 5 lakhs face value.
(c) The total amount of commercial paper proposed to be issued
should be raised within a period of two weeks from the date on which the issuer
opens the issue for subscription and should be issued on a single date or in
parts on different dates provided that in the latter case, each commercial
paper shall have the same maturity date.
(d) The commercial paper should be as a 'stand alone' product and
the aggregate amount to be raised by issue of commercial paper shall be within
the limit approved by your Board of Directors. Banks and Financial Institutions
will also.
(e) The commercial paper should be in the form of issuance of
promissory as per the form specified in Schedule I to these Guidelines or in a
dematerialised form through any of the depositories approved by and registered
with SEBI and should be issued at such discount to face value as may be
determined by your company.
(f) The Commercial Paper may be issued to and held by
individuals, banking companies, other corporate bodies registered or
incorporated in India and unincorporated bodies, non‑resident Indians and
Foreign Institutional Investors.
4. Convene a Board meeting of your company after giving notice
to all the directors of your company as per section 286 and approve the
proposal of issuing commercial paper and also approve the agreement to be
entered into with the Issuing and Paying Agent.
5. Obtain the credit rating certificate from one of the credit
rating agencies, CRISIL or ICRA or CARE, or FITCH Ratings Private Ltd. or such
other credit rating agency as may be specified by RBI.
6. Appoint
any scheduled bank to act as an Issue and Paying Agent (IPA).
7. Submit the information of issue of commercial paper giving
details in the form given in Schedule II to these guidelines through the
Issuing and Paying Agent within 3 days from the date of completion of the issue
to the Chief General Manager, Industrial and Export Credit Department (IECD),
RBI, Central Office, Mumbai together with the certificate issued by the credit
rating agency.
8. Ensure that your company does not get the issue of your
company's commercial paper underwritten or co‑accepted in any manner
whatsoever.
9. Keep in mind to disclose to the potential investors your
company's financial position as per the standard market practice and after the
exchange of deal confirmation between the investor and your company, issue
physical certificates to the investor or arrange for crediting.
10. Give to investors a copy of Issuing and Paying Agents,
Certificate in the format given in Schedule III to these guidelines to the
effect that your company has a valid agreement with the said Agents and
documents are in order.
11. Ensure that the initial investor in Commercial Paper pays the
discounted value of the commercial paper by means of a crossed account payee
cheque to, your company's account through the Issuing and Paying Agent.
(Topic 277 to Topic 281)
Topic 277
DO YOU WISH TO SEEK EXTERNAL COMMERCIAL
BORROWINGS (ECB) FOR US$ 50 MILLION?
1. Decide whether the ECB sought for is for financing expansion
of existing capacity or for new investment or for re‑financing existing
loans.
2. Also decide whether the ECB sought for will be by way of
commercial bank loans or buyer's credit or supplier's credit or securitised
instruments, such as Floating Rate Notes and Fixed Rate Bonds etc. or credits
from officially supported agencies or commercial borrowings from the private
sector window of Multilateral Financial Institutions such as International
Finance Corporation (Wasington) ABD, AFIC, CDC etc.
3. Keep in mind that priority will be given to infrastructure
and core sectors such as power, oil exploration, telecom, railways, roads and
bridges, ports, industrial parks and urban infrastructure, such as water
supply, sanitation and sewage projects, etc. and the export oriented and import
substitution units and also to medium and small scale units while considering
ECB applications.
4. Further keep in mind that ECB will be allowed to be raised
for any purpose without any end‑use restrictions excluding investments in
stock‑markets or in real estate.
5. The loan amount may be raised in one or more branches
subject to the condition that the total outstanding loan at any point of time
does not exceed US $ 50 million.
6. ECB
sought for total export production purposes will be given priority.
7. Keep in mind that the period of loan maturity of ECB and
every branch of it will be weighted average of all disbursements taking each
disbursement individually and its period of retention by your company.
8. Applicants for ECB are free to raise commercial loans from
any internationally recognised source including commercial banks, export credit
agencies, suppliers credits, foreign collaborations, foreign equity‑holders,
international capital markets etc. offer from unrecognised sources will be
entertained.
9. Keep in mind that the choice of repayment schedule within the maturity period should be decided by your company in advance and mentioned in the application.
10. Your company should negotiate the loan terms of ECB keeping
in mind that the said loan terms properly reflect the current available market
terms in all respects and the Government will respect institutional
relationship between the borrower and lender in this regard.
11. Your company should also choose the currency of the loan to
be obtained through ECB and the basis of interest rate whether floating or
fixed before making the application for ECB.
12. Your company should also decide about the security to be
provided to the lenders in consultation with the lenders, and see that the
proceeds of ECB are not utilised for investment in stock market or for
speculation in real estate.
13. If the aforesaid security is in the form of a guarantee from
an Indian Financial Institution or an Indian Scheduled Commercial Bank there is
no need to have counter guarantee or confirmation of the said guarantee by any
institution or bank abroad.
14. Convene a Board Meeting after giving notice to all the
directors of the company as per Section 286 and pass a resolution for making
the application for ECB and also for giving authority to one of the directors
of the company to sign the application and to do everything needful in
connection with obtaining the approval for ECB.
15. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1000/-.[Section 286(2)]
16. Submit through an authorised dealer of your company's choice
3 copies of the loan agreement to the concerned Regional Office of RBI after
signing, the same with the lender and the said Regional Office of RBI would
acknowledge the receipt of copies of the agreement and would allot a loan
identification number to such an agreement.
17. Please keep in mind that your company will not be permitted
to follow the practice of borrowing overseas for financing your company's rupee
requirements and thereafter swapping your company's ECB with another body
corporate which requires foreign currency resources.
18. Further keep in mind that interest and fees payable on all
ECB will no longer be eligible for tax exemption under section 10(15)(iv)(b) to
(g) of the Income‑tax Act, 1961 from Ist June, 2001. Exemptions under
section 10(15)(iv)(b) and (d) to (g) were earlier granted by the Department of
Economic Affairs while exemption under section 10(15)(iv)(c) will be granted by
the Department of Revenue, Ministry of Finance.
19. Note that this withdrawal of tax‑exemption is done
because the Ministry of Finance felt that the interest received by the lender
is taxable in the country of his residence and he would get credit for any tax
paid in India and so any exemption from tax liability in the host country does
not benefit the lender but it merely results in reducing Indian tax revenues.
20. Keep in mind that ECB approval is valid for a period of 6 months
and only in case of power projects the validity of the approval will be for a
period of one year. In the case of telecom sector project the validity of the
approval will be for 9 months.
21. Further keep in kind that Bonds, Debentures, FRNs and other such
instruments will have additional validity period of 3 months for all the ECB
approvals across the board.
22. Further keep in mind that no extension is to be granted
beyond the validity period but a fresh application can be submitted, after 1
month after expiry of validity period.
23. Note that the pre‑payment facility will be permitted
through inflow of foreign equity and also through the following two options:
(i) on permission by the RBI on submission by the authorised
dealer of the application of your company it should be undertaken within the
permitted period of all ECBs with residual maturity upto 1 year;
(ii) prepayment upto 10% of outstanding ECB will be permitted once
during the life of the loan subject to the company complying with the ECB
approval terms.
24. Please note that companies who have already availed repayment
facility of 20% earlier would not be eligible for the above.
25. Further note that 100% prepayment is also permitted where the
source of funds is from EEFC account.
26. Keep in mind that operating and out‑of‑pocket
expenses incurred for ECB approval not resulting in loans will be allowed as
per prevailing RBI guidelines on current account transacti6 ns subject to a
cap.
27. Obtain specific approval from RBI through your authorised
dealer for remittances of such expenses.
Topic 278
1. Decide whether the ECB sought for is for financing expansion
of existing capacity or for fresh investment or for re‑financing existing
loans.
2. Also decide whether the ECB sought for will be by way of
commercial bank loans or buyer's credit or supplier's credit or securitised
instruments, such as Floating Rate Notes and Fixed Rate Bonds, etc. or credits
from officially supported agencies or commercial borrowings from the private
sector window of Multilateral Financial Institutions such as International
Finance Corporation (Wasington) ADB, AFIC, CDC etc.
3. Keep in mind that priority will be given to infrastructure
and core sectors, such as power, oil exploration, telecom, railways, roads and
bridges, ports, industrial parks and urban infrastructure such as water supply,
sanitation and sewage projects, etc. and the export oriented and import
substitution units and also to medium and small scale units while considering
ECB applications.
4. Companies can utilise the foreign currency proceeds of ECB
for rupee expenditure for general corporate objectives excluding investments in
stock markets or in real estate and also in the following infrastructural
projects:
(i) power; (ii) telecommunications; (iii) railways;
(iv) roads including bridges; (v) ports; (vi) industrial parks; and (vii) urban
infrastructure. Corporate borrowers are also permitted to raise ECB to acquire
ships/vessels from Indian shipyards.
5. ECB
sought for total export production purposes will be given priority.
6. Keep in mind that the period of loan maturity of ECB will be
weighted average of all disbursements taking each disbursement individually and
its period of retention by your company.
7. Applicant's for ECB are free to raise commercial loans from
any internationally recognised source including commercial banks, export credit
agencies, suppliers credits foreign collaborators, foreign equity holders,
international capital markets etc. Offers from unrecognised sources will be
entertained.
8. Keep in mind that the choice of repayment schedule within
the maturity period should be decided by your company in advance and mentioned
in the application.
9. ECB raised by exporters, 100% EOUs and EPCG licence‑holders
upto thrice the average amount of annual exports during the previous 3 years
subject to a maximum of US $ 200 million without end use restrictions and the minimum
maturity will be 3 years upto US $20 million.
10. Your company should negotiate the loan terms of ECB keeping
in mind that the said loan terms properly reflect the current available market
terms in all respects and the Government will respect institutional
relationship between the borrower and lender in this regard.
11. Your company should also choose the currency of the loan to
be obtained through ECB and the basis of interest rate whether floating or
fixed before making the application for ECB.
12. Your company should also decide about the security to be
provided to the lenders in consultation with the lenders and your company
should not utilise the proceeds of ECB for investment in stock market or for
speculation in real estate.
13. If the aforesaid security is in the form of a guarantee from
an Indian Financial Institution or an Indian Scheduled Commercial Bank there is
no need to have counter guarantee or confirmation of the said guarantee by any
institution bank abroad.
14. Convene a Board Meeting after giving notice to all the
directors of the company as per Section 286 and pass a resolution for making
the application for ECB, and also for giving authority to one of the directors
of the company to sign the application and to do everything needful in
connection with obtaining the approval for ECB.
15. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1000/-. [Section 286(2)]
16. Prepare the application in the prescribed format' and send
the application to the Reserve Bank of India, Exchange Control Department,
Central Office, ECB Division Mumbai.
17. Ensure
that the aforesaid application is accompanied by the following:
(1) Certified
true copy of Memorandum and Articles of Association.
(2) Certified true copy of latest audited balance sheet and
profit and loss account along with Director's and Auditor's Reports.
(3) Certified
true copy of the Board Resolution.
(4) Copy of approval of the relevant authorities for the import
of items where necessary.
(5) Original offer letter from the lender giving the detailed
terms and conditions.
(6) Details of contact person/office with telephone numbers to
enable quick references to be made, if clarifications are needed in connection
with the application.
(7) Copy of project Appraisal Report from a recognised Financial
Institution or Bank if applicable.
18. No
application fee is required to be paid for this application.
19. Please keep in mind that your company will not be permitted
to follow the practice of borrowing overseas for financing your company's rupee
requirements and thereafter swapping your company's ECB with another body
corporate which requires foreign currency resources.
20. Further keep in mind that interest payable on all ECB will no
longer be eligible for tax exemption under section 10(15)(iv)(b) and (d) to (g)
of the Income tax Act, 1961 from 1st June, 2001. Exemptions under section
10(15)(iv)(b) and (d) to (g) were earlier granted by the Department of Economic
Affairs while exemption under section 10(15)(iv)(c) will be granted by the
Department of Revenue, Ministry of Finance.
21. Keep in mind that ECB approval is valid for a period of 6
months that is the executed copy of the loan agreement should be submitted
within this period. Only in case of power projects the validity of the approval
will be for a period of one year and in case of infrastructural projects
extension of validity may be considered on merits. In case of telecom sector
project the validity of the approval will be for 9 months.
22. Further keep in mind that Bonds, Debentures, FRNs and other
such instruments will have additional validity period of three months for all
the ECB approvals across the board.
23. No extension of validity period is given and only course open
is to make a fresh application, after 1 month after the expiry of the validity
period.
24. Note that prepayment facility will be permitted through
inflow of foreign equity and also through the following two options:
(i) on permission by the RBI it should be undertaken within the
permitted period of all ECBs with residuary maturity upto 1 year.
(ii) prepayment upto 10% of outstanding ECB will be permitted once
during the life of the loan subject to the company complying with the ECB
approval terms.
25. Please note that companies who have already availed repayment
facility of 20% earlier would not be eligible for the above.
26. Further note that 100% prepayment is also permitted where the
source of funds is from EEFC account.
27. Keep in mind that operating and out‑of‑pocket
expenses incurred for ECB approval not resulting in loans will be allowed as
per prevailing RBI guidelines on current account transactions subject to a cap.
28. Obtain
specific approval from RBI for remittances of such expenses.
29. Note that your company will not need to submit loan
agreements for taking on record (TOR) henceforth to the Government, but to the
concerned regional office of the RBI who will send a copy of loan documents/TOR
records to the Government4.
30. Also note that default interest not exceeding 2% over the
applicable rate will be incorporated in the approval letter/taken on record
letter itself. No further approval would be required from the Government or
RBI.
Topic 279
DO YOU WISH TO SEEK EXTERNAL COMMERCIAL
BORROWINGS (ECB)' FOR MORE THAN US$ 100 MILLION?
1. Decide whether the ECB sought for is for financing expansion
of existing capacity or for new investment.
2. Also decide whether the ECB sought for will be by way of
commercial bank loans or buyers' credit or supplier's credit or securitised
instruments, such as Floating Rate Notes and Fixed Rate Bonds etc. or credits
from officially supported agencies or commercial borrowings from the private
sector window of Multilateral Financial Institutions such as International
Finance Corporation (Washington) ADB, AFIC, CDC etc.
3. Keep in mind that priority will be given to infrastructure
and core sectors such as power, oil exploration, telecom, railways, roads and
bridges, ports, industrial parks and urban infrastructure etc. and the export
oriented and import substitution units and also to medium and small scale units
while considering ECB applications.
4. Further keep in mind that ECB will be allowed to be raised
only for meeting foreign exchange cost of capital investment and project‑related
rupee expenditure for general corporate objectives excluding investments in
stock markets or in real estate. Corporate borrowers will also be permitted to
raise ECB to acquire ships/vessels from Indian shipyards.
5. Also keep in mind that it has been decided by the Government
that henceforth ECBs can be used for any purpose except investment in real
estate and in capital markets.
6. ECB can be utilised for rupee expenditure in the following
infrastructure areas also:
(i) power; (ii) telecommunications; (iii) railways;
(iv) roads; (v) ports; (vi) Industrial parks; (vii) urban infrastructure.
7. Your company will be permitted to raise ECB to acquire ships
or vessels from Indian shipyards.
8. ECB,
sought for total export production purposes will be given priority.
9. Keep in mind that the average maturity of ECB's will be
weighted average of all disbursements taking each disbursement individually and
its period of return by the borrower.
10. Note that Indian Development Financial Institutions and
Corporates engaged in infrastructure projects, telecommunications and oil
exploration and development excluding refining will be pem‑iitted to raise
ECB at a minimum average maturity of 5 years.
11. Further note that Bonds and FRNs can be raised in tranches of
different maturities with the average maturity of the different tranches within
the same overall approval taken together if it satisfies the maturity criteria
prescribed in the ECB guidelines and in such cases longer term borrowings
should necessarily precede shorter term borrowings with longer the initial
tenure the shorter the subsequent tranches within the average maturity.
12. Keep in mind that corporate who have foreign exchange
earnings will be permitted to raise ECB upto thrice the average amount of
annual exports during the previous 3 years subject to a maximum US$ 200 million
without any end‑use restriction excluding investments in stock market or
real estate with minimum average maturity of 5 years.
13. Also keep in mind that holding companies/promoters will be
permitted to raise ECB upto a maximum of US$ 200 million equivalent to finance
equity investment in a subsidiary/joint venture company implementing
infrastructure projects with the object of enabling domestic equity
requirements. In case the debt is being raised by more than one promoter for a
single project then the total quantum of loan by all promoters put together
must not exceed US$ 20W million.
14. Further keep in mind that all infrastructure projects will be
permitted to have ECB exposure to the extent of 50% of the project cost as
appraised by a recognised financial institution/bank subject to fulfilment of
other ECB guidelines, greater flexibility beyond 50% of the project cost may be
allowed in case of power sector and other infrastructure projects based on
merits. ,
15. In case your company is going for ECB with 8 years average
maturity or above it will be outside the ECB ceiling even though Ministry of
Finance's and Reserve Bank of India's prior approval for such borrowings would
continue to be applicable to such cases with the extent of debt under this
window being reviewed by the Government periodically.
16. In case your company is applying to raise long terrn
resources with an average maturity of 8 years or 16 years your company will be
allowed to use ECB proceeds without the normal end‑use restrictions upto
US$ 200 million for issue of 8 years and above upto 16 years and US$ 400
million for issue of 20 years and above. Such amounts will be available to your
company for general corporate objectives excluding investments in stock market
or in real estate.
17. Keep in mind that your company to be eligible for the aforesaid
purpose should not include any 'put' or 'call' options on the debt instruments
issued by your company potentially reducing the stated maturities.
18. Note that borrowing under this long‑term window which
are exempted from the cap are not eligible for the purpose of enhancing the
maturity of shorter term borrowings prescribed under normal ECB window to reach
the required average maturity.
19. Further note that in case borrowings for 8 years maturity and
above are to be used to lengthen the maturity of shorter term borrowings then
the entire amount must be treated as within the cap.
20. Further note that utilisation of the ECB approved earlier
under the regular ECB cap will not be a limiting factor for considering
proposals under the long term maturity window, but additional borrowing under
either of the window that is regular or under long‑term maturity is
subject to utilisation of earlier approvals in the same window.
21. Further note that companies may raise these borrowings either
through FRN/Bond Issues/Syndicated Loan, etc., as long as the maturity and the
interest spread are maintained as per the guidelines.
22. Further note that project appraisal report is not necessary
if funds are raised under the long‑term maturity window to be utilised
for general corporate objectives subject to the limits prescribed at item 34
below.
23. Applicant's for ECB are free to raise commercial loans from
any internationally recognised source including commercial banks, export credit
agencies, suppliers credits, foreign collaborators, foreign equity‑holders,
international capital markets etc. Offers from unrecognised sources will not be
entertained.
24. Keep in mind that the choice of repayment schedule within the
maturity period of 3 years should be decided by your company in advance and
mentioned in the application.
25. Your company should negotiate the loan terms of ECB keeping
in mind that the said loan terms properly reflect the current available market
terms in all respects and the Government will respect institutional
relationship between the borrower and lender in this regard.
26. Your company should also choose the currency of the loan to
be obtained through ECB and the basis of interest rate whether floating or
fixed before making the application for ECB.
27. Your company should also decide about the security to be
provided to the lenders in consultation with the lenders.
28. If the aforesaid security is in the form of a guarantee from
an Indian Financial Institution there is no need to have counter guarantee or
confirmation of the said guarantee by any institution abroad.
29. Convene a Board Meeting after giving notice to all the
directors of the company as per section 286 and pass a resolution for making
the application for ECB and also for giving authority to one of the directors
of the company to sign the application and to do everything needful in
connection with obtaining the approval for ECB.
30. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1,000/-. [Section 286(2)]
31. Your company should not under any circumstances utilise the
proceeds of ECB for investment in stock market or for speculation in real
estate.
32. Prepare the application in the prescribed format6 and send
the applica‑ tion to the Joint Secretary (ECB), Department of Economic
Affairs, Ministry of Finance, North Block, New Delhi‑ 110 001.
33. Ensure
that the aforesaid application is accompanied by the following:
(1) Certified
true copy of Memorandum and Articles of Association.
(2) Certified true copy of latest audited balance sheet and
profit and loss account along with Director's and Auditor's Reports.
(3) Certified
true copy of the Board Resolution.
(4) Copy
of approval of the relevant authorities for the import of items where
necessary.
(5) Original
offer letter from the lender giving the detailed terms and conditions.
(6) Details of contact person/office with telephone numbers to
enable quick references to be made, if clarifications are needed in connection
with the application.
(7) Copy of Project Appraisal Report from a recognised Financial
Institution or Bank if applicable.
(8) Copies of relevant documents and approvals from Central/State
Governments, wherever applicable, such as FIPB, CCEA and SIA clearances
environmental clearance, techno‑economic clearance from Central
Electricity Authority, valid licenses from competent authorities, no objection
certificate from Ministry of Surface Transport, evidence of exports/foreign
exchange earnings from the statutory auditor based on the bankers realisation
certificate, registration with RBI. In case of NBFCs, approval for overseas
investment from RBI, etc.
34. No
application fee is required to be paid for this application.
35. After receiving approval for ECB from the Ministry of Finance
you are required to obtain additional approval from the Reserve Bank of India
under the Foreign Exchange Management Act, 1999. For procedure see Topics 280
and 281.
36. Refinancing of outstanding amounts under existing loans by
raising fresh loans at lower costs will be permitted on a case‑to‑case
basis subject to the condition that the outstanding maturity of the original
loan is maintained. Rolling over if ECB will not be permitted.
37. Please keep in mind that your company will not be permitted
to follow the practice of borrowing overseas for financing your company's rupee
requirements and thereafter swapping your company's ECB with another body
corporate which requires foreign currency resources.
38. Further keep in mind that interest payable on all ECB will no
longer be eligible for tax exemption under section 10(15)(iv)(b) to (g) of the
Income‑tax Act, 1961 from Ist June, 2001. Exemptions under section
10(15)(iv)(b) and (d) to (g) were earlier granted by the Department of Economic
Affairs while exemption under 10(15)(iv)(c) will be granted by the Department
of Revenue.
39. Keep in mind that ECB approval is valid for a period of 6
months that is the executed copy of the loan agreement should be submitted
within this period. Only in case of power projects the validity of the approval
will be for a period of one year and in case of infrastructure projects
extension of validity may be considered on merits.
40. No extension of validity period is given and only course open
is to make a fresh application, after 1 month after the expiry of the validity
period.
41. Note that the pre‑payment facility will be permitted
through inflow of foreign equity and also through the following two options:
(i) on permission by the RBI it should be undertaken within the
permitted period of all ECB's with residuary maturity upto 1 year;
(ii) prepayment upto 10% of outstanding ECB will be permitted once
during the life of the loan subject to the company complying with the ECB
approval terms.
42. Please note that companies who have already availed repayment
facility of 20% earlier would not be eligible for the above.
43. Further note that 100% prepayment is also permitted where the
source of funds is from EEFC account.
44. Keep in mind that operating and out‑of‑pocket
expenses incurred for ECB approval not resulting in loans will be allowed as
per prevailing RBI guidelines on current account transactions subject to a cap.
45. Obtain
specific approval from RBI for remittances of such expenses.
46. Note that your company will not need to submit loan
agreements for taking on record (TOR) henceforth to the Government, but to the
concerned regional office of the RBI who will send a copy of loan documents/TOR
records to the Government.
47. Also note that default interest not exceeding 2% over the
applicable rate will be incorporated in the approval letter/taken on record
letter itself. No further approval would be required from the Government or
RBI.
Topic 280
DO YOU WISH TO MAKE AN APPLICATION TO
THE RESERVE BANK OF INDIA FOR RAISING FOREIGN CURRENCY LOAN/ CREDITS?
1. After obtaining the necessary clearance from the Ministry of
Finance, Department of Economic Affairs, (External Commercial Borrowing
Division) as per Topic 277 you have to make an application to the Reserve Bank
of India under sections 3 and 6 of the Foreign Exchange Management Act, 1999.
2. Keep in mind that the initial clearance as aforesaid will
indicate the terms and conditions regarding amount of loan or credit, the rate
of interest at which the loan or credit is to be obtained, period of repayment
to be made by the borrower to the lender.
3. On the basis of these terms and conditions prepare and make
an application to the concerned regional office of the Reserve Bank of India
(RBI) Exchange Control Department within whose jurisdiction the registered
office of the borrower is situated.
4. The aforesaid application should be made in Form ECB in
duplicate directly to the RBI through the authorised dealer.
5. Ensure that before forwarding the application to the RBI,
the authorised dealer properly scrutinises all the related original documents
to see that the application is complete in all respects and strictly in order
as per rules.
6. Attach
to the application in Form ECB the following:
(1) Copy
of contract/agreement for the proposed foreign currency loan or credit.
(2) Copy of the letter approving the terms of the loan or credit
issued by the Ministry of Finance, Department of Economic Affairs (ECB
Division).
(3) A certificate from your company to the effect that the draft
agreement has been carefully examined by your company and your company's
solicitors and that no additional foreign exchange liability either expressed
or implied arises in proper performance of the agreement besides those approved
by the Government of India.
(4) Copy of Exchange Control of licence or original letter of
intent with a certified copy issued by the Government of India indicating that
they have approved in principle grant of necessary import licence, where
necessary.
(5) Letters from banks/institutions in India giving terms and
conditions subject to which they have agreed to grant rupee loans for financing
the part cost of the project.
(6) Schedule
of draw down of loan/credit with expected dates, currency, and documents.
(7) In case of Financial Lease, schedule of loan/credit repayment
(both principal and interest) indicating due dates and amount of each
instalment or schedule of payment of lease rent.
7. No
application fee is required to be paid with this application.
8. Also ensure ihat the application for permission to issue the
bank guarantee or letter of credit in favour of foreign banks is submitted to
the RBI simultaneously with the aforesaid application in Form ECB 1 with a
copy of the draft guarantee and other relevant documents.
9. On receipt of the RBI's approval conclude the loan or credit
agreement with the overseas lender, taking care to ensure that no liability,
direct or indirect other than that specifically approved by the Ministry of
Finance Department of Economic Affairs (ECB Division) and the RBI is assumed by
the borrower through the loan or credit agreement.
10. After execution of the loan or credit agreement submit two
executed copies of the loan or credit agreement to the regional office of the
RBI who will send a copy of loan documents or credit agreement to the' Ministry
of Finance, Department of Economic Affairs, (ECB Division).
11. After submission of the two executed copies of the loan or
credit agreement as aforesaid, obtain from the Ministry of Finance, Department
of Economic Affairs, the final clearance from them for drawing the loan.
12. Make again an application to the RBI along with two executed
copies of the loan agreement for permission to effect drawal of the loan amount
for utilisation or disbursement.
13. Do not forget to quote loan identification number allotted by
RBI to your company's foreign currency loan or credit, on all correspondence,
all return and statements submitted by your company to the RBI.
Topic 281
1. Keep in mind that once your company obtains clearance from
the Ministry of Finance, Department of Economic Affairs (ECB Division) and also
permission from the Reserve Bank of India (RBI) or from RBI when the ECB is for
US$ 100 Million or less to go for foreign currency loan or credit, your company
is required to submit to RBI quarterly statements in the prescribed form about
utilisation of the foreign loan amount by the end of the month following the
quarter to which they relate till the entire loan or credit is drawn or
utilised.
2. Submit the aforesaid quarterly return to the RBI through
your authorized dealer in duplicate in a prescribed format.
3. Submit the above‑mentioned return within a period of
10 days from the close of the quarter which it relates.
4. Submit the above‑mentioned return directly to that
office of the RBI which approved the loan or credit.
5. Ensure that the aforesaid quarterly return mentions the loan
identification number allotted by the RBI to your company's foreign currency
loan or credit prominently and clearly.
6. Also
ensure that type of credit is properly mentioned in the aforesaid return.
7. Give the repayment Schedule indicating exact dates of
payments with this return, if they have not been submitted at the time of
agreement.
8. In case any revision is made in the repayment schedule of
your company's foreign currency loan or credit at any stage during the currency
of the loan or credit, then it should be notified to the RBI by submitting the
aforesaid indicating the revised due dates.
9. In case there are no withdrawals during a quarter a 'NIL'
return should be submitted to the RBI in the above‑mentioned form
indicting only the outstanding balance of loan/credit.
10. Ensure that the following documents and papers duly certified
by the statutory auditors/chartered accountants are enclosed to the quarterly
return towards utilisation of loan/credit:
(1) Exchange
Control copies of the Import Licences, where applicable;
(2) Original
invoices evidencing import;
(3) Exchange
Control copies of bills of entry evidencing import.
11. Note that Companies opening foreign currency bank accounts in
India/abroad for, retention of the loan funds of external commercial borrowing
(ECB) pending utilisation can invest the proceeds of it abroad for a period not
exceeding I year pending their utilisation.
12. Further note that retaining of ECB proceeds abroad
withouthaving any specific plan of utilisation and also investing them abroad
beyond the stipulated period of 1 year without approval of the RBI should not
be done as such parking of funds abroad is a temporary facility and should not
be used as an arena for investment.
13. Use
the following codes in the said return for utilisation of drawal:
(i) Import of capital goods; (ii) Import of raw
materials; (iii) Remittance to India; (iv) Pre‑payment of old
loans/repayments; (v) Amount held abroad in Foreign Currency account; (vi)
Interest payment; (vii) Payment for technical services; (viii) Others
(specify).
14. Use
the following codes in the said return for source of funds:
(i) Remittance from India; (ii) From FCL funds held abroad; (iii) From foreign currency account held abroad; (iv) Conversion of equity capital; (v) From Export proceeds held abroad; (vi) By debit to EFC/EEFC account in India; (vii) Others (specify).
15. Give the date of imports in place of dates of drawals in the
said return in case your company has opted for supplier's credit.