Issue of unsecured debentures by a company to another company, where the debentures have an option for compulsory conversion into equity shares within seven years, cannot be termed as deposits.

Section 73 of Companies Act, 2013 read with Rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014 define the term 'deposit'. As per clause (ix) of Rule 2(1)(c), deposit shall not include any amount raised by issue of bonds or debentures secured by first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Companies Act, 2013 excluding intangible assets of the company or the bonds or debentures compulsorily convertible into shares of the company within 10 years. In view of comprehensive reading of the above clause the unsecured debenture issued having option of compulsory conversion into shares of the company within 10 years shall not be treated as deposits. In the given case the unsecured debentures issued by the company having option of compulsory conversion into shares of the company within seven years cannot be treated as deposits.