Question

Samit, one of the directors of Zarr Technology Private Limited,
a start-up company, requested his close friend Ritesh to lend to
the company ₹30.00 lacs in a single tranche by way of a
convertible note repayable within a period six years from the date of its issue.Advice whether it is deposit or not?

Answer 1

Answer:

i don't know this thanks

Answer 2

Answer:

No, the convertible note repayable within a period six years from the date of its issue is not considered as a deposit.

Explanation:

Convertible Note-

• A convertible note is a type of financial instrument that can be repaid at the holder's discretion or changed into equity shares in accordance with the other terms and conditions stipulated in the instrument.
• A mixture of debt and equity is a convertible note. Convertible notes feature a clause that allows the principle and interest to convert into an equity investment at a later time, despite the fact that they are initially designed as debt investments.

• As per Rule 2, in sub rule (1), in clause (c), in sub-clause (xvii) of The Companies (Acceptance of Deposits) Rules, 2014:

“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, shall not be treated as Deposits”

Start up company-

• A company that has been incorporated or registered in India for less than ten years and whose prior financial year's annual revenue did not exceed INR 100 crore is referred to as a "startup" if it is working to develop, deploy, or commercialize new goods or services that are based on technology or intellectual property.

Hence, from the above discussion we can conclude that,  ₹30 lakhs borrowed from Ritesh by Samit, in a single tranche by way of a convertible note repayable within a period six years from the date of its issue is not a Deposit.

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