Prohibition on acceptance of deposits from public – as contained under section 73 of the Companies Act, 2013 is reproduced below:
73. (1) On and after the 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:
Provided that nothing in this sub-section shall apply to a banking company and non-banking financial company as defined in the Reserve Bank of India Act, 1934 (2 of 1934) and to such other company as the Central Government may, after consultation with the Reserve Bank of India, specify in this behalf.
(2) 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 fulfillment 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:
Provided that in case 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) Every deposit accepted by a company under sub-section (2) shall be repaid with interest in accordance with the terms and conditions of the agreement referred to in that sub-section.
(4) Where a company fails to repay the deposit or part thereof or any interest thereon under sub-section (3), 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.
(5) The deposit repayment reserve account referred to in clause (c) of sub-section (2) shall not be used by the company for any purpose other than repayment of deposits.
This provision is covered by Chapter V on ACCEPTANCE OF DEPOSITS BY COMPANIES [Sections 73 to 76].
For this chapter, the Companies (Acceptance of Deposit) Rules, 2014 (‘the Rules’) are notified with effect from April 01, 2014.
Section 73 is applicable to all companies. [Section 73 is brought to force w.e.f. 01 April 2014].
For this provision, rules called the Companies (Acceptance of Deposit) Rules, 2013 are notified.
Corresponding provisions of the Companies Act, 1956:
Section 58A.
The Companies (Acceptance of Deposit) Rules, 1975.
Corresponding provisions of the English Companies Act, 2006:
No such provision.
This provision applies to all companies, except the following:
(a) banking company,
(b) a non-banking finance company, as defined in the Reserve Bank of India Act, 1934 and registered with the Reserve Bank of India,
(c) a housing finance company registered with the National Housing Finance Bank established under the National Housing Finance Bank Act, 1987; and
(d) such companies as may be specified by the Central Government.
Major difference is as under:
|
Companies Act 2013 |
Companies Act 1956 |
| Private company cannot accept deposit from public. | Private company cannot accept deposit from public. |
| Only eligible companies can accept deposit from public. | All public companies could accept deposits from public. |
| Private companies can accept deposit only from its directors, relatives of directors (( relatives of directors w.e.f.15 September 2015 )) and members. However, acceptance of deposit by a private company as well as public company from its members is subject to provisions of section 73 and the Rules.
|
Private companies could accept deposit only from its members, directors and their relatives without any limit or restrictions, except that declaration by a Director was required that the Director has not borrowed funds for giving as deposit to the Company.
Public companies could accept deposits from its members, subject to the Companies (Acceptance of Deposit) Rules, 1975. |
| Private companies and ineligible public companies can accept deposit from its members upto 25% of its aggregate paid-up share capital, free reserves and securities premium account (( w.e.f. 15 September 2015 )), in compliance of the prescribed procedure. Eligible companies can accept deposit from its members upto 10% of its aggregate paid-up share capital, free reserves and securities premium account (( w.e.f. 15 September 2015 )), in compliance of the prescribed procedure. |
Private companies could accept deposits from its members without any limit. Public companies could accept deposit from its members upto 10% of its aggregate paid-up share capital and free reserves, in compliance of the prescribed procedure. |
Comments:
The Chapter V prohibits acceptance of deposits from public by companies, mandates repayment of already accepted public deposits and also provides that only ‘eligible companies’ can accept public deposits. Briefly,
Section 73 prohibits acceptance of deposits from public by companies (except banking companies, NBFCs and other companies to be specified by the Government). It also provides for acceptance of deposits from members.
Section 76 permits acceptance of deposits by public companies with specified net worth, turnover etc.
Section 74 mandates repayment of deposits accepted before commencement of the Act of 2013.
Section 75 provides for damages payable if the deposits accepted with intent to defraud the depositors or for any fraudulent purpose.
Section 73 provides for acceptance of deposits from members and prohibits acceptance of deposits from public. However, certain eligible public companies are permitted to accept deposits from public as per provisions of section 76.
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 Reserve Bank of India ((Section 2(31), brought to force from April 01, 2014. Also Rule 2(1)(c) of the Rules)).
Acceptance of deposits from public:
Companies are generally prohibited from accepting (including inviting and renewing) deposits from public. Only public companies, meeting eligible criteria and subject to compliance of several conditions as specified in section 76, are permitted to invite, accept or renew deposits from public.
[mks_highlight color=”#eeee22″]The Rules defines “eligible company” means a public company having a networth of Rs.100 crore (INR 1 billion) or turnover of Rs.500 crore (INR 5 billion) and which has obtained the prior consent of its members by way of special resolution at general meeting and has files the said resolution with the Registrar of Companies before making invitation to the public for acceptance of deposits. However, where such public company accepts deposits within the limits specified under section 180(1)(c) (aggregate of paid-up share capital and free reserves) then consent of members by ordinary resolution suffices. ((Rule 2(1)(e) )) [/mks_highlight]
However, the general prohibition is not applicable to Banking Companies, non-banking financial companies, housing finance companies and other companies, which the Government may specify in consultation with the Reserve Bank of India.
Acceptance of deposits from members:
A company may accept deposits from its members by fulfilling requirements specified in the Act and the rules, which the Central Government has framed in consultation with the Reserve Bank of India.
A company may accept deposits from its members, subject to terms and conditions, including the provision of security, if any, or for the repayment of such deposits with interest, as may be [mks_highlight color=”#eeee22″] agreed upon between the company and its members [/mks_highlight].
Following requirement shall be fulfilled by a company to accept deposits from its members ((Section 73(2) )).
- Obtaining consent of members by ordinary resolution. However, where borrowing of a company has exceeded limit specified in clause (c) of section 180(1) of the Act, consent of members by way of special resolution is required.
- filing a circular with the Registrar of Companies (before issuing it to members). Such circular to state financial position of the company, credit rating (if any) obtained, total number of depositors from which the company has already accepted deposits, deposit amount due for repayment and other details as the Government may prescribe. Circular shall be approved by the Board of Directors and signed by majority of directors of the Company (majority of directors as were on the date of approval of Circular by the Board). ((Rule 3(5) ))
- issuing aforesaid circular to members of the company [mks_highlight color=”#eeee22″]within 30 days of filing with the Registrar [/mks_highlight]. The Rules states that the Circular shall be issued [mks_highlight color=”#eeee22″] after 30 days of filing the same with the Registrar [/mks_highlight]. ((Rule 4(5) )) Circular shall be sent to all members of the company either by registered post acknowledgement due or speed post or by electronic mode in Form DPT-1. ((Rule 4(1) )) Such circular [mks_highlight color=”#eeee22″] may be advertised [/mks_highlight] in an English newspaper and in Vernacular language in a vernacular newspaper having wide circulation in the State in which the registered office of the company is situated. ((proviso to Rule 4(1) )) Copy of circular shall be uploaded on website of the Company, if any. ((Rule 4(3) ))
- maintaining liquid asset by depositing minimum of 15% of the amount of deposits maturing during the current and next financial year (i.e. two financial years). Such liquid asset shall be kept in a separate bank account with any of the scheduled commercial banks. Such bank account shall be called [mks_highlight color=”#eeee22″]deposit repayment reserve account [/mks_highlight]. For example, if name of company is XYZ Private Limited, then it shall have a bank account called ‘XYZ Pvt Ltd – deposit repayment reserve account’. The deposit repayment reserve account shall not be used by the company for any purpose other than repayment of deposits. ((Section 73(5) ))
- provide deposit insurance upto such extent and in a prescribed manner.
- certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of the Act of 2013 or payment of interest on such deposit.
- optionally providing security, including creation of charge on assets of the company, for due repayment of the deposit amount or interest thereon. And where no security is provided for the repayment, such deposits shall be termed as “unsecured deposits”. And words “unsecured deposits” shall be quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits.
Where a company fails to repay the deposit or part thereof or any interest thereon in accordance with the terms and conditions of the agreement between the company and its members, the depositor concerned may apply to the National Company Law 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 ((Section 73(3) and (4) )).
Some of the terms and conditions for acceptance of deposits as mandated by the Rules:
(a) A private company and ineligible public companies can accept or renew deposits from its members upto 25% of aggregate of its paid-up share capital and free reserves. ((Rule 3(3) of the Rules.))
(b) Period of deposit for acceptance or renewal:
Companies cannot accept deposits repayable on demand.
Minimum period of deposit shall be of 6 months.
Maximum period of deposit shall be of 36 months. ((Rule 3(1)(a) of the Rules.))
For meeting short-term requirements of funds, companies may accept deposits upto 10% of the aggregate paid-up share capital and free reserves and period for such short-term deposit
Minimum period of 3 months and maximum period of 6 months. ((Proviso to rule 3(1)(a) of the Rules.))
(c) Rate of interest and brokerage:Â Companies can pay interest on deposits to depositors and brokerage to agent not above the rates prescribed by the Reserve Bank of India for acceptance of deposit by a non-banking finance company. Agent means a person who is authorised by a company in writing to solicit deposits in its behalf and through whom deposits are actually procured. ((Rule 3(6) ))
(d) Prohibition on unilateral right to modify terms: Companies cannot reserve right to alter terms and conditions of deposit, deposit trust deed and deposit insurance contract which are to the prejudice or disadvantage of the depositor. ((Rule 3(7) ))