Acceptance of Deposits by Companies :
Deposits from the public are an important mode of finance in the corporate sector. It is accordingly necessary to control the companies inviting deposits from the public in order to safeguard the general and wider interest of the public at large.
According to the definition given under section 2(31) of the Companies Act, 2013, the term ‘deposit’ includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include such categories of amount as may be prescribed in consultation with the RBI.
According to the Companies (Acceptance of Deposits) Rules, 2014, following categories of amount may not be considered as deposit-
(i) Any amount received from the Central Government or a state Government, or from any other source whose repayment is guaranteed by the Central Government or a State Government, or any amount received from a local authority, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature ;
(ii) Any amount received from foreign Governments, foreign international banks, multilateral financial institutions etc. subject to the provisions of Foreign Exchange Management Act, 1999
(iii) any amount received as a loan or facility from any banking company.
(iv) Any amount received as a loan or financial assistance from Public Financial Institutions
(v) any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by the Reserve Bank of India;
(vi) any amount received by a company from any other company;
(vii) any amount received and held pursuant to an offer made in accordance with the provisions of the Act towards subscription to any securities,(including share application money or advance towards allotment of securities, pending allotment), so long as such amount is appropriated only against the amount due on allotment of the securities applied for;
If the securities for which application money or advance for such securities was received cannot be allotted within 60 days from the date of receipt of the application money or advance for such securities and such application money or advance is not refunded to the subscribers within 15 days from the date of completion of 60 days, such amount shall be treated as a deposit under these rules.
(viii) any amount received from a person who, at the time of the receipt of the amount, was a director of the company
(ix) any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Act
(x) any amount received from an employee of the company
(xi) any non-interest bearing amount received or held in trust;
(xii) any amount received in the course of, or for the purposes of, the business of the company – as an advance for the supply of goods or provision of services accounted for, as advance
(xiii) any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank
(xiv) any amount accepted by a Nidhi company in accordance with the section 406 of the Act.
(1) Prohibition on acceptance of deposits from public: According to section 73 of the Companies Act, 2013, on and from commencement of this Act, no company shall invite, accept or renew deposits under this Act from the public except in a manner provided under this Chapter of the Act.
Exception : This sub-section with respect to the acceptance of deposit from public shall not apply to the following company:
(i) banking company ,
(ii) non- banking financial company as defined in the Reserve Bank of India Act, 1934,
(iii) a housing finance company registered with the National Housing Bank established under the National Housing Bank Act, 1987 ,and
(iv) and such other company as the Central Government may specify, after consultation with the Reserve Bank of India.
(2) When company may accept deposit from its members: A company may, subject to the passing of a resolution in general meeting and subject to such rules as may be prescribed in consultation with the Reserve Bank of India, accept deposits from its members on such terms and conditions, including the provision of security, if any, or for the repayment of such deposits with interest, as may be agreed upon between the company and its members, subject to the fulfilment of the following conditions, namely:—
(a) issuance of a circular to its members including therein a statement showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in such form and in such manner as may be prescribed;
(b) filing a copy of the circular along with such statement with the Registrar within thirty days before the date of issue of the circular;
(c) depositing such sum which shall not be less than fifteen per cent. of the amount of its deposits maturing during a financial year and the financial year next following, and kept in a scheduled bank in a separate bank account to be called as deposit repayment reserve account;
(d) providing such deposit insurance in such manner and to such extent as may be prescribed;
(e) certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits; and
(f) providing security, if any for the due repayment of the amount of deposit or the interest thereon including the creation of such charge on the property or assets of the company:
Where a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as ‘‘unsecured deposits’’ and shall be so quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits.
(3) Repayment of deposit: Every deposit accepted by a company shall be repaid with interest in accordance with the terms and conditions of the agreement.
(4) Failure on the repayment of deposit: Where a company fails to repay the deposit or part thereof or any interest thereon, the depositor concerned may apply to the Tribunal for an order directing the company to pay the sum due or for any loss or damage incurred by him as a result of such non-payment and for such other orders as the Tribunal may deem fit.
As per the Companies (Removal of Difficulties) Second Order, 2014 dated 2nd of June, 2014, Central government makes an order to remove certain difficulties that have arisen in giving effect to the provisions of Section 73. According to it,until a date is notified by the Central Government under sub-section (1) of Section 434 of the Companies Act, 2013 (18 of 2013), the Company Law Board constituted in pursuance of sub-section (1) of Section 10E of the Companies Act, 1956 shall exercise the jurisdiction, powers, authority and functions under this sub- section (4) of Section 73 of the Companies Act, 2013 .
(5) Application of the amount of DRR account: The deposit repayment reserve (DRR) account shall not be used by the company for any purpose other than repayment of deposits
(6) Repayment of deposits, etc, accepted before commencement of this Act:
(i) According to section 74 of the Companies Act, 2013, Where in respect of any deposit accepted by a company before the commencement of this Act, the amount of such deposit or part thereof or any interest due thereon remains unpaid on such commencement or becomes due at any time thereafter, the company shall—
(a) file, within a period of three months from such commencement or from the date on which such payments, are due, with the Registrar a statement of all the deposits accepted by the company and sums remaining unpaid on such amount with the interest payable thereon along with the arrangements made for such repayment, notwithstanding anything contained in any other law for the time being in force or under the terms and conditions subject to which the deposit was accepted or any scheme framed under any law; and
(b) repay within one year from such commencement or from the date on which such payments are due, whichever is earlier.
(ii) The Tribunal may on an application made by the company, after considering the financial condition of the company, the amount of deposit or part thereof and the interest payable thereon and such other matters, allow further time as considered reasonable to the company to repay the deposit.
As per the Companies (Removal of Difficulties) Fourth Order, 2014 dated 6th of June 2014, the Central Government hereby makes the order that until a date is notified by the Central Government, the Company Law Board [constituted in pursuance of Section l0E(1) of the Companies Act, 1956] shall exercise the jurisdiction, powers, authority and functions of the Tribunal here under said Act.
(iii) If a company fails to repay the deposit or part thereof or any interest thereon within the time specified in sub-section (1) or such further time as may be allowed by the Tribunal under sub-section (2), the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees and every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both.
(7) Acceptance of deposits in contravention to rules: Sub-section (6) of section 58 A of the Companies Act, 1956 levies penalties on the company for accepting or inviting deposits in contravention of the rules made by the Central Government. If the contravention relates to the acceptance of deposit, the amount of fine is equal to, or more than, the amount of the deposit so accepted. But in the case of invitation of any deposit in contravention of the said rules, the minimum amount of fine is at least ` 50,000 and the maximum limit is ` 10 lakhs. Besides, every officer of the company who is in default shall be punishable with imprisonment for a term extending up to 5 years and also liable with fine.
[Note: The corresponding provision is given in the section 75 of the Companies Act, 2013, which is not yet notified. For the reference see the annexure]
(8) Acceptance of deposits from public by certain companies: According to section 76. of the Companies Act, 2013 – (1) a public company, having such net worth of not less than one hundred crore rupees or turnover of not less than five hundred crore rupees, may accept deposits from persons other than its members subject to compliance with the requirements provided in sub-section (2) of section 73 and subject to such rules as the Central Government may, in consultation with the Reserve Bank of India, prescribe:
Provided that such a company shall be required to obtain the rating (including its networth, liquidity and ability to pay its deposits on due date) from a recognised credit rating agency for informing the public the rating given to the company at the time of invitation of deposits from the public which ensures adequate safety and the rating shall be obtained for every year during the tenure of deposits:
Provided further that every company accepting secured deposits from the public shall within thirty days of such acceptance, create a charge on its assets of an amount not less than the amount of deposits accepted in favour of the deposit holders in accordance with such rules as may be prescribed.
(2) The provisions of this Chapter shall, mutatis mutandis, apply to the acceptance of deposits from public under this section.