Rule 2 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The first seven exceptions to "deposit" were covered in part 1. This article covers the rest of rule 2: sub-clauses (viii) to (xviii) of clause (c) with their Explanations, then the definitions in clauses (d) to (i) and sub-rule (2). It states the text as amended up to G.S.R. 663(E) dated 29 August 2022 per the MCA e-book; later amendments should be checked.
The next exceptions include money from a director, or from a relative of a director of a private company, with a written declaration that it is not borrowed money; secured or compulsorily convertible debentures; business advances held only for the periods printed (such as 365 days for advances for goods or services); and a start-up's convertible note of twenty five lakh rupees or more in a single tranche. Anything promising returns is a deposit unless specifically excluded in the clause. For classification work, our DPT-3 return of deposits team can help.
Sub-clauses (viii) to (xi)
(viii) Director and relative money. Any amount received from a person who, at the time of receipt, was a director of the company or a relative of the director of the private company. The proviso requires that the director (or relative of a director of the private company) furnish at the time of giving the money a written declaration that the amount is not given out of funds acquired by borrowing or accepting loans or deposits from others, and the company must disclose the details of the money so accepted in the Board's report. The relative limb is tied to a private company, as printed. See our posts on loans to a private company from directors and relatives and deposit exemptions for members and directors.
(ix) Secured and convertible debentures. Any amount raised by bonds or debentures secured by a first charge, or a charge ranking pari passu with it, on Schedule III assets excluding intangible assets, or compulsorily convertible into shares within ten years (five until 2016). Where secured by such a charge, the amount must not exceed the market value of those assets as assessed by a registered valuer.
(ixa) Listed non-convertible debentures. Non-convertible debentures not constituting a charge on the company's assets and listed on a recognised stock exchange under SEBI regulations (inserted in 2016).
(x) Employee security deposits. Any amount from an employee not exceeding his annual salary under a contract of employment, as a non-interest bearing security deposit.
(xi) Trust money. Any non-interest bearing amount received and held in trust.
Sub-clause (xii): business receipts
Any amount received in the course of, or for the purposes of, the business of the company:
| Item | Receipt | Condition |
|---|---|---|
| (a) | Advance for supply of goods or provision of services | Appropriated against supply or services within three hundred and sixty five days of acceptance; the 365-day limit does not apply to an advance that is the subject of legal proceedings before a court. |
| (b) | Advance in connection with consideration for an immovable property under an agreement or arrangement | Adjusted against such property per the agreement. |
| (c) | Security deposit for performance of a contract for supply of goods or services | None beyond purpose. |
| (d) | Advance under long term projects for supply of capital goods (except item (b)) | None beyond purpose. |
| (e) | Advance towards consideration for future services under a warranty or maintenance contract per written agreement | Services period not beyond the period prevalent in common business practice or five years, whichever is less. |
| (f) | Advance allowed by a sectoral regulator or in accordance with directions of the Central or State Government | As allowed. |
| (g) | Advance for subscription to publications, in print or electronic | Adjusted against receipt of the publications. |
A proviso says that if an amount under items (a), (b) and (d) becomes refundable (with or without interest) because the company lacks the necessary permission or approval to deal in the goods, properties or services, the amount is deemed a deposit. The Explanation adds that such amount is deemed a deposit on the expiry of fifteen days from the date it becomes due for refund.
Sub-clauses (xiii) to (xviii)
(xiii) Promoters' unsecured loans. Any amount brought in by promoters as an unsecured loan under a stipulation of a lending financial institution or bank, if: (a) it is brought in pursuant to the lender's stipulation that promoters contribute finance; (b) it is provided by the promoters themselves or their relatives or both; and (c) the exemption lasts only until the institution's or bank's loans are repaid and not afterwards.
(xiv) Nidhi companies. Any amount accepted by a Nidhi company in accordance with the rules made under section 406 of the Act. The Nidhi Rules article on rules 1 and 2 explains those rules, and our section 406 post the Act.
The Explanation after (xiv). Any amount (a) received by the company, in instalments or otherwise, from a person with a promise or offer to give returns, in cash or in kind, on completion of the period specified or earlier, or (b) any additional contributions made by the company as part of such promise or offer, is considered a deposit unless specifically excluded under this clause. The words were substituted in 2016.
(xv) Chit subscriptions. Any amount received as a subscription in respect of a chit under the Chit Fund Act, 1982.
(xvi) Collective investment schemes. Any amount received under any collective investment scheme in compliance with SEBI regulations.
(xvii) Start-up convertible notes. An amount of twenty five lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding ten years from the date of issue) in a single tranche, from a person. "Start-up company" means a private company incorporated under the Companies Act, 2013 or the Companies Act, 1956 and recognised under notification G.S.R. 127(E) dated 19 February 2019 of the Department for Promotion of Industry and Internal Trade. "Convertible note" means an instrument evidencing receipt of money initially as a debt, repayable at the holder's option or convertible into equity shares upon specified events and agreed terms. The ten-year period was substituted on 7 September 2020. The 1956 Act is quoted as printed; check the current law.
(xviii) Investment vehicles. Any amount received from Alternate Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts, Real Estate Investment Trusts and Mutual Funds registered with SEBI under its regulations.
Definitions in clauses (d) to (i) and sub-rule (2)
| Clause | Meaning |
|---|---|
| (d) "depositor" | (i) a member who has made a deposit under section 73(2); or (ii) any person who has made a deposit with a public company under section 76. |
| (e) "eligible company" | A public company referred to in section 76(1) with a net worth of not less than one hundred crore rupees "of" a turnover of not less than five hundred crore rupees, which has obtained the prior consent of the company in general meeting by resolution and filed it with the Registrar before inviting the public to accept deposits. A proviso lets an eligible company accepting deposits within the limits in section 180(1)(c) do so by ordinary resolution. |
| (f) "fees" | Fees as specified in the Companies (Registration Offices and Fees) Rules, 2014. |
| (g) "Form" / "e-Form" | A form set forth in the Annexure to be used for the matter it relates to. |
| (h) "section" | Section of the Act. |
| (i) "trustee" | The trustee as defined in section 3 of the Indian Trusts Act, 1882. |
Drafting note: in clause (e) the net worth and turnover limbs are joined by the word "of" as printed, not "or" or "and"; read the Gazette text before relying on either limb. Sub-rule (2) says words not defined here but defined in the Act, the RBI Act, 1934 or the Specification of Definitions Details Rules, 2014 carry those meanings. See our post on the net worth and turnover test.
Example
Nova Robotics Private Limited, a recognised start-up, accepts a convertible note of twenty five lakh rupees in a single tranche; it is not a deposit under (xvii). Its director lends a further sum with a written declaration that the funds are not borrowed, and the company discloses it in the Board's report under (viii). A customer's advance for goods appropriated within 365 days is excluded under (xii)(a).
Need help with director loans or start-up notes?
The exemption often depends on a declaration, a time limit or a board report entry. We can review your loans and advances against these sub-clauses and prepare the return: see our DPT-3 return of deposits service.
Key takeaways
- Director and relative money is excluded only with a written declaration and Board's report disclosure.
- Secured or compulsorily convertible debentures qualify within the limits in (ix); listed non-convertible debentures not constituting a charge fall in (ixa).
- Business advances are excluded only within the periods printed in (xii).
- Anything promising returns is a deposit unless the clause specifically excludes it.
- Start-up convertible notes need twenty five lakh rupees or more in a single tranche.
Read next
- Rules 1 and 2, part 1: what is a deposit and the first seven exceptions
- Rules 18–22: eligible companies, penalty and forms
- Converting a loan into equity shares under section 62(3)
- Section 76: deposits from the public by an eligible company
Disclaimer: Based on the Companies Act, 2013 rules named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.