Many of the gold savings schemes offered by the jewellers, are facing closure after the commencement of Companies (Acceptance of Deposit) Rules, 2014, which came into force from 1 April 2014.
In this Article we have discussed the legal aspects of such schemes and under what circumstances can such schemes be considered legal.
DIFFERENT TYPES OF SCHEMES
- In this type of scheme, the customers shall pay a certain amount on a monthly basis for a certain number of months and the Company shall pay the last installment amount of such scheme on behalf of the customer, and at the end of the tenure of such scheme, the company shall issue equivalent value of gold to the customers (“Gold Saving Scheme”).
- There may other type of a scheme, wherein the customers will deposit certain quantity of gold to the Company for a certain number of months and the company shall pay an interest in the form of gold bullion and issue equivalent value of gold (i.e. gold deposited by customer plus interest on such gold for the deposit period in the form of bullion) to the customers at the end of the tenure of the scheme (“Gold Deposit Scheme”).
ANALYSIS OF THE PROVISIONS OF THE COMPANIES ACT, 2013
Gold Saving Scheme:
Section 73 of the Companies Act, 2013 read with the Companies (Acceptance of Deposit) Rules, 2014 strictly prohibits acceptance of deposit from public by a private limited company.
Explanation to Clause 1 (c) (definition of “deposit”) of Rule 2 of the Companies (Acceptance of Deposit) Rules, 2014 lays down the following:
“For the purpose of this clause, any amount-
- received by the company, whether in the form of instalments or otherwise, from a person with promise or offer to give returns, in cash or in kind, on completion of the period specified in the promise or offer, or earlier, accounted for in any manner whatsoever, or
- any additional contributions, over and above the amount under item (a) above, made by the company as part of such promise or offer,
shall be considered as deposits unless specifically excluded under this clause.
In terms of the above clause, if any amount is received by a company from a person, pursuant to an offer made by a company, in the form of instalments for a certain specified period with a stipulation that upon completion of the offer period the company shall make additional contributions or give returns, in cash or in kind, the same shall be considered as deposits, unless specifically excluded under Clause 1 (c).
Sub-clause (xii) of Clause 1 (c) of Rule 2 of the Companies (Acceptance of Deposit) Rules, 2014 lays down the following:
“ any amount received in the course of, or for the purposes of, the business of the company,-
(a) as an advance for the supply of goods or provision of services accounted for in any manner whatsoever provided that such advance is appropriated against supply of goods or provision of services within a period of three hundred and sixty five days from the date of acceptance of such advance….”
Clause 1 (c) lays down the definition of deposit and also lays down an exhaustive list of items which shall not be construed as deposits and sub-clause (xii) as aforesaid, is one such entry in the list. Therefore, in terms of the aforesaid clause, if any amount is received in the course of or for the purpose of business of the company as an advance for supply of goods and such advance is used for supply of goods within a period of 365 (three hundred and sixty five) days from the date of receipt of such advance, then such receipt of money will not be treated as deposits.
Applying the above analysis for the Gold Saving Scheme, wherein pursuant to an offer of the company, the customers shall pay a certain amount on a monthly basis for a certain number of months and the company shall make additional contribution in the form of payment of the last installment amount of such Gold Saving Scheme on behalf of the customer. Therefore, it might be construed as a deposit in terms of the analysis hereinabove.
However, in terms of sub-clause (xii) of Clause 1 (c) of Rule 2 of the Companies (Acceptance of Deposit) Rules, 2014 as provided in paragraph hereinabove, if the amount received by the company as an advance for supply of goods and the same is appropriated within a period of 365 (three hundred and sixty five) days or 12 (twelve) months from the date of receipt of such advance and the customers are provided with the goods within such time, then the said amount received from the customers may not come under the definition of deposits under the Companies Act, 2013.
Therefore, a company cannot offer Gold Saving Scheme to its customers with a maturity period of 12 months and above and good should be delivered to the customers against the advances received from them in terms of the Gold Saving Scheme within a period of 365 days or 12 months from the date of receipt of such advance.
In the event a company intends to float schemes with a maturity period of 12 months and above, then the same shall be construed as deposits under the Companies Act, 2013 and only an eligible public company can raise deposits from the public. Therefore, a company has the following two options:
- To apply for registration as a non-banking finance company with the Reserve Bank of India as the Companies (Acceptance of Deposit) Rules, 2014 is not applicable to a non-banking finance company. Any company registered under the Companies Act and having a minimum net owned fund of Rs. 2,00,00,000 may apply for registration as a non-banking finance company with the Reserve Bank of India; or ;
- A company has to apply for conversion into a public limited company. Upon conversion into a public limited company, the company should ensure that it is an eligible public company under the Companies Act, 2013, i.e. a company should have a net worth of not less than one hundred crore rupees or a turnover of not less than five hundred crore rupees. If it becomes an eligible public company, the company can float schemes with maturity beyond 12 months subject to compliance with the applicable provisions of the Companies Act, 2013, which shall, inter alia, comprise of the following:
- The company should have obtained the prior consent of the shareholders in general meeting by means of a special resolution and also filed the said resolution with the Registrar of Companies before making any invitation to the Public for acceptance of deposits;
- issuance of a circular to its members including therein a statement showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in such form and in such manner as may be prescribed;
- depositing such sum which shall not be less than fifteen per cent of the amount of its deposits maturing during a financial year and the financial year next following, and kept in a scheduled bank in a separate bank account to be called as deposit repayment reserve account;
- providing such deposit insurance in such manner and to such extent as may be prescribed;
- providing security, if any for the due repayment of the amount of deposit or the interest thereon including the creation of such charge on the property or assets of the company;
- the company shall not accept deposits exceeding twenty-five per cent of aggregate of the paid-up share capital, free reserves and securities premium account of the company;
- the company shall not accept deposit carrying a rate of interest exceeding the maximum rate of interest or brokerage prescribed by the Reserve Bank of India for acceptance of deposits by non-banking financial companies.
Gold Deposit Scheme:
Under this scheme, the customers will deposit certain quantity of gold to the company for a certain number of months and the company shall pay an interest on the gold so deposited, in the form of gold bullion and issue equivalent value of gold to the customers at the end of the tenure of the Gold Deposit Scheme.
In this scheme, since the company is not accepting any amounts from its customers, it is rather accepting gold from the customers which is not governed under the Companies Act, 1956 and therefore a company may float such scheme(s) accepting gold from customers for a period beyond 365 days and paying interest on such gold deposit to the customers in the form of gold.
Further, the Securities and Exchange Board of India (“SEBI”) is also examining gold savings schemes offered by jewellers to check whether such offerings are flouting regulations on collective investment schemes. A collective investment scheme (“CIS”) is any scheme or arrangement made or offered by any company under which the contributions, or payments made by the investors, are pooled and utilised with a view to receive profits, income, produce or property, and is managed on behalf of the investors. Investors do not have day to day control over the management and operation of such scheme or arrangement.
A CIS is regulated by SEBI. According to the Securities Laws (Amendment) Act, 2014 any pooling of funds under any scheme or arrangement, which is not registered with SEBI, involving a corpus amount of Rs. 100,00,00,000 (Rupees one hundred crore only) or more shall be deemed to be a CIS and shall require SEBI’s registration and approval.
Mr. Prashant Kumar Jain, Partner, Samisti Legal.
Ms. Anita Dugar, Senior Associate, Samisti Legal.
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