If Business advance received from a Company is not appropriated for either supply of goods or providing services within 365 days, will it be treated as a Deposit? 

Introduction:

Deposit is defined u/s 2(31) of the Companies Act, 2013 (the ‘Act’) which states that "deposit" includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India. Any money falling under prescribed 18 categories prescribed in rules are not considered as deposit.

The question which we are discussing in this article is as follows:

Amount received by the Company from another Company as business advance for the purpose of either supply of goods or provided services; not appropriated for the purpose within 365 days from the date of acceptance of such advance – will that amount be treated as deposits? 

For the purpose of this question, following provisions are important

Rule 2(c) of Companies (Acceptance of Deposit) Rules, 2014 defines deposit as-

Deposit" includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include – …

(vi) any amount received by a company from any other company; …

(xii) 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:

Provided that in case of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of three hundred and sixty five days shall not apply: …

Analysis:

Now the question is

1.      Whether the money received by the Company is from another Company? – Yes

2.       

(a)    Whether the money received by the Company is from another Company as business advance? – Yes

(b)   Whether the money received by the Company is from another Company as business advance is appropriated for the purpose of either supply of goods or provided services within 365 days from the date of acceptance of such advance? No

It is imperative to note that the condition mentioned under sub-clause (vi) is fully complied whereas the condition mentioned under sub-clause (xii) is half complied.

Out of the 18 categories, none of exclusions states that if conditions are not complied money received will be considered as deposit except under sub-clause (vii) viz., if the allotment is not made within 60 days from the date of share application money received, it will be considered as deposit.  

Conclusions:

If the money is received in full compliance of either under rule 2(c)(vi) or rule 2(c)(xii), then that money gets exempted from the definition of deposit.

Thus, any money received by a company from another company, regardless of the purpose it will be covered under rule 2(c)(vi) and will not be considered as deposit even if it falls under other categories of exclusions prescribed in rules.