Public Deposits - Acceptance of ‑ Scope and provision of Companies (Acceptance of Deposits) Rules, 1975 explained - Companies Law - Circular : No. 4/12/81‑CL‑X,

Circular : No. 4/12/81 ‑ CL ‑ X, dated 30 ‑ 3 ‑ 1984. Public Deposits - Acceptance of ‑ Scope and provision of Companies (Acceptance of Deposits) Rules, 1975 explained Rule 2(b)(x) : WHETHER AMOUNTS RAISED BY ISSUE OF UNSECURED BONDS OR DEBENTURES WHICH HAVE AN OPTION TO CONVERT THEM INTO SHARES ARE EXEMPT FROM THE PURVIEW OF DEPOSITS AS DEFINED IN THE RULE 1. In terms of rule 2(b)(x) the amounts raised by issue of bonds or debentures which have an option to convert them into shares are exempted from the purview of deposits as defined in clause (b) of rule 2. The following questions have been raised in regard to the true scope of exemption contained in sub‑clause (x) of rule 2(b), namely : 1. Whether debentures which are partly convertible into shares should be treated as fully exempt from the Deposit Rules or only such portion thereof as is convertible should be exempted ? 2. Whether on the expiry of the option for conversion, the convertible portion of the debentures in respect of which no option has been exercised for conversion by the debenture‑holders and which continue to retain the character of unsecured debentures, should continue to fall within the purview of deposits as defined in the Deposit Rules ? 2. The matter has been examined and this Department is advised that in the case of debentures which are partly convertible into shares, only the convertible portion of the debenture is exempt in terms of the provisions of rule 2(b)(x). Even in regard to the convertible portion of debentures, once the period of conversion is over the unconverted portion of debentures would acquire a character of loan and would fall with the definition of deposits like other loans provided they are not secured by mortgage of immovable property of the company in terms of sub‑clause (x) of rule 2(b). Similarly, where the period for the exercise of option for conversion has expired, the convertible portion of the debentures in respect of which no option has been exercised for conversion by the debenture‑holders, will acquire the character of loan and will fall within the purview of deposits as defined in the Rules, if these debentures are not secured in the manner mentioned above.