Unsecured Unlisted NCDs Subscribed by a Company: Navigating the Deposit Definition Under the Companies Act, 2013

Overview

Within corporate groups, unlisted companies regularly mobilise funds from holding companies, fellow subsidiaries, or associate entities. One popular mechanism is the issuance of unsecured non-convertible debentures (NCDs), which offer both parties a structured, transferable instrument carrying a defined coupon rate and a fixed redemption date — as opposed to a simple inter-corporate loan.

A question that routinely arises in such arrangements is whether the money so raised falls within the meaning of "deposit" under Chapter V of the Companies Act, 2013. The concern stems from the fact that unsecured, unlisted NCDs do not fulfil either of the two debenture-specific exclusions contained in the Companies (Acceptance of Deposits) Rules, 2014. However, as this article explains, the exclusion framework under the deposit rules is not limited to debenture-specific carve-outs — and a source-based exclusion exists that can independently cover such arrangements where the subscriber is a company.

Primary Statutory Provisions

The following provisions govern the analysis:

  • Section 2(31) of the Companies Act, 2013 — the parent definition of "deposit", which delegates the task of specifying exclusions to rules framed in consultation with the Reserve Bank of India.
  • Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 ("Deposit Rules") — restates the deposit definition and enumerates, in sub-clauses (i) to (xviii), categories of receipts that are not deposits.
  • Section 2(20) — defines "company" as one incorporated under the Companies Act, 2013 or any previous company law; this determines eligibility of the subscriber for the inter-corporate exclusion.
  • Section 2(30) — defines "debenture" to include any instrument of a company evidencing a debt, whether or not it creates a charge on assets (proviso inserted by the Companies (Amendment) Act, 2017, effective 09.02.2018).
  • Section 73 — prohibits acceptance of deposits except in the manner prescribed under Chapter V; Section 76A prescribes punishment for contraventions.
  • Rule 16 of the Deposit Rules — mandates annual filing of Form DPT-3, including disclosure of receipts not treated as deposits.
  • Section 42 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 — governs private placement of securities including debentures; Rules 9A/9B of the same Rules govern dematerialisation for unlisted public and private companies (other than small companies).
  • Section 71 read with Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 — deals with debenture issuance and the debenture redemption reserve.
  • Sections 179(3)(c) and 180(1)(c) — Board-level and shareholder-level approvals for borrowings and issuance of debentures.
  • Section 186 — applicable on the subscriber's side, as subscribing to debentures constitutes an acquisition of securities of another body corporate.

Key Sub-Clauses of Rule 2(1)(c)

Three sub-clauses are directly relevant:

Rule 2(1)(c)(vi) — Inter-Corporate Receipts (Source-Based Exclusion)

Any amount received by a company from any other company is not a deposit.

Rule 2(1)(c)(ix) — Secured or Compulsorily Convertible Debentures (Instrument-Based Exclusion)

Amounts raised through bonds or debentures secured by a first or pari passu charge on tangible assets (subject to a valuation cap certified by a registered valuer), or those compulsorily convertible into equity shares within ten years, are not deposits.

Rule 2(1)(c)(ixa) — Listed Unsecured NCDs (Instrument-Based Exclusion, inserted w.e.f. 29.06.2016)

Amounts raised through NCDs that create no charge on assets but are listed on a recognised stock exchange in accordance with SEBI regulations are not deposits.

How the Deposit Definition Operates

The deposit definition in Section 2(31) of the Companies Act, 2013 functions across two distinct layers: