Tag: ROC

Section 74: Repayment of deposits, etc., accepted before commencement of this Act.

Provisions on repayment of deposits, etc., accepted before commencement of Companies Act, 2013 is reproduced below:

74. (1) 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.
(2) 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.
(3) 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.

[highlight]Section 74 (1) is brought to force from April 01, 2014. Sub-sections (2) and (3) of Section 74 is not yet brought to force.[/highlight]

This provision is covered by Chapter V 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.

Corresponding provisions of the Companies Act, 1956:
No such provision.

Corresponding provisions of the English Companies Act, 2006:
No such provision.

Applicability:
[highlight] Section 74 is applicable to all companies. [/highlight]

What is the difference from the Companies Act, 1956:
Only private companies were prohibited under the Companies Act, 1956 from accepting public deposits. Private companies were permitted to accept deposits from shareholders / members, directors and their relatives. All public companies were permitted to accept deposits from public, subject to the Companies (Acceptance of Deposits) Rules, 1975.
Under the Companies Act, 2013, entire landscape of ‘deposits’ is changed. Accordingly it mandates all companies to repay deposits within 1 year. All companies can accept deposits from its members / shareholders, subject to compliance of stricter norms under section 73. Only public companies can invite or accept deposits from public, subject to strict procedure under the Rules and section 76. All companies can accept money, which does not fall within the definition of ‘deposit’ under the Rules.

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), not yet brought to force)).

However, for the purpose of sub-section (1) of section 74, term ‘deposit’ has to be read as ‘deposit’ within the meaning of the Companies Act, 1956. This is so because (a) definition of ‘deposit’ under the Companies Act, 2013 is subject to context in which it is used; and (b) sub-section (1) refers to ‘deposit accepted by a company before the commencement of this Act’.
Where any deposit is accepted by a company, before the commencement of the Act, and any amount thereof or interest due thereon has remained unpaid (though due) then such companies shall, after the commencement of the Act:

(a) 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, [highlight]file with the Registrar of Companies,

(i) within three months of commencement of the Act (in respect of deposit and interest thereon which became due but remained unpaid) ((date extended by MCA till 31st August 2014)) or

(ii) within three months of due date for repayment of deposits and interest thereon (where they are not due fore repayment at the time of commencement of the Act),

a statement ((in Form DPT-4)) [/highlight] of all the deposits accepted by the company and sums remaining unpaid with interest payable thereon. Such statement shall also give details of arrangements made by the Company for its repayment.

AND

Where any deposit is accepted by a company, before the commencement of the Act, and any amount thereof or interest due thereon has remained unpaid (though due) then such companies shall, after the commencement of the Act,

(b)

(i) repay the amount of deposit and interest thereon which became due but remained unpaid, within one year of commencement of the Act, or

(ii) the amount of deposit and interest thereon which has not yet became due for repayment, repay the same on their due date(s),

whichever is earlier.

Where a company comprehends its inability to repay as per (b) above, it may approach National Company Law Tribunal (‘NCLT’) ((power delegated by MCA to Company Law Board)), for seeking more time to repay deposit.

NCLT may allow reasonable more time to repay the deposits with interest after considering, inter alia, its financial position, amount of deposits and interest thereon. ((Section 74(2) )). [highlight]This provision is brought to force from 06 June 2014. [/highlight]

It is clarified by way of an explanation under the Rules ((Explanation to Rule 19 of the Rules)), that in case of a company which had accepted or invited public deposits under the relevant provisions of the Companies Act, 1956 and rules made under that Act (hereinafter known as “Earlier Deposits”) and has been repaying such deposits and interest thereon in accordance with such provisions, and if the following conditions are fulfilled by the company then it need not repay deposits within a year:
(i) the Company complies with requirements under the Act and the rules and
(ii) the Company continues to repay such deposits and interest due thereon on due dates for the remaining period of such deposit in accordance with the terms and conditions and period of such Earlier Deposits and in compliance with the requirements under the Act and the rules.

Both above conditions requires compliance with the requirements under the Act and the rules. It means if a company is a public company and is also a ‘eligible company’ within the meaning of the Rules and complies with other requirements of acceptance of deposits from public, then only it need not comply with section 74(1)(b).

Penalty:
The provision relating to penalty under section 74(3) is brought to force from 06 June 2014. It provides as under:

Where a company fails to repay deposits and interest thereon or part thereof within aforesaid time, or within extension of time given by NCLT:
(a) the company is liable to minimum fine of Rs.1,00,00,000/- (Rupees one crore) and which may extend upto Rs.10,00,00,000/- (Rupees ten crore). Despite payment of fine, the company continues to be liable to repay deposits with interest.

(b) Besides the company, every officer of the company who is in default is liable to minimum fine of Rs.25,00,000/- (Rupees twenty five lakh) and which may extend upto Rs.2,00,00,000/- (Rupees two crore) or with imprisonment upto seven years or with both (fine and imprisonment). ((Section 74(3) )).

(c) Any suit, proceedings or other action may be taken by any person, group of persons or any association of persons who had incurred any loss as a result of failure of the company to repay deposits and interest thereon or part thereof. ((Section 75(2) ))

(d) Where it is proved that the [highlight]deposits have been accepted with intent to defraud the depositors or for any fraudulent purpose[/[highlight] every officer of the company [highlight]who was responsible for the acceptance of such deposit shall be personally responsible, without limitation of liability, for all or any of the losses or damages that may have been incurred by the depositors. In addition, action under section 447 may be taken (which provides punishment for fraud by way of minimum imprisonment of 6 months and upto 10 years as also minimum fine equivalent to amount involved in the fraud and upto three times thereof. ((Section 75(1) ))

[pullquote-right]Damages are generally an award of money, to be paid as compensation for loss or injury.[/pullquote-right]
The term ‘compensation’ as stated in the Oxford Dictionary, signifies that which is given in recompense, an equivalent rendered. ‘Damages’ on the other hand constitute the sum of money claimed or adjudged to be paid in compensation for loss or injury sustained, the value estimated in money, of something lost or withheld. ((The Divisional Controller, KSRTC vs Mahadeva Shetty And Anr. AIR 2003 SC 4172: (2003) 7 SCC 197))

Nature of offence:
Since officers of company may be punished with imprisonment, it is necessary to decide nature of offence.

Since offence is punishable with imprisonment for a term exceeding two years, it is treated as warrant case under section 2(x) of the Code of Criminal Procedure Code, 1973.

Adjudication:
Under Section 454, the officer appointed by the Central Government, not below the rank of Registrar of Companies, may adjudicate and impose monetary penalty for violation of this section, where it decides that no prosecution be launched. However, before imposing penalty, an opportunity of hearing shall be given to the Company and its officers.Compounding:
The offence is not compoundable under section 441 of the Act.
Summary of forms and records:
Statement regarding deposits existing as on April 01, 2014 shall be in form DPT-4.

Section 73. Prohibition on acceptance of deposits from public.

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.

Applicability:

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.

What is the difference from the Companies Act, 1956:

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) )).

  1. 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.
  2. 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) ))
  3. 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) ))
  4. 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) ))
  5. provide deposit insurance upto such extent and in a prescribed manner.
  6. 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.
  7. 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:  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) ))

Section 18: Conversion of companies already registered.

Chapter II
INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO

Provisions of the Companies Act, 2013:
Section 18: Conversion of companies already registered.
For this provision, no rules are prescribed the Companies Rules, 2013.
[Section 18 is not yet brought to force.]
Section 18 is not a procedural provision. It confers right on companies to convert itself into any other class of company.

Corresponding provisions of the Companies Act, 1956:
Section 21 (conversion of private company into public company or vice versa)
Section 31 (conversion of public company into private company)
Section 32 (conversion of unlimited company into limited company)

Corresponding provisions of the English Companies Act, 2006
Part 7: Sections 90 to 96 re-registration of private company as public
Part 7: Sections 97 to 101 re-registration of public company as private
Part 7: Sections 102 to 104 re-registration of private limited company as unlimited
Part 7: Sections 105 to 108 re-registration of unlimited private company as limited
Part 7: Sections 109 to 111 re-registration of public company as private and unlimited

Applicability:
This section is applicable to all companies.

Section 18 confers right on companies to convert itself into other class by altering its memorandum and articles of association. Such alteration shall made in the manner prescribed in Chapter II of the Companies Act 2013. It may be noted that section 13 provides for alteration of memorandum and section 14 provides for alteration of articles, whereby a company can be converted into another class of company (say private company to public company etc.).

The company shall make application for conversion into other class of company to the Registrar of Companies (‘ROC’). ROC shall satisfy itself that the Company has complied with the requisite provisions for registration of company. If so satisfied, ROC shall close the former registration and issue fresh certificate of incorporation, after registering the documents submitted for change in class of company.

It is clarified that conversion of company does not affect any debts, liability, obligations or contracts incurred or entered into, by the company or on behalf of the company before conversion. And such debts, liability, obligations or contracts shall be enforceable in the same manner as if such conversion has not been done.

Though the law misses out on enforceability and ownership of its rights and assets, the same shall remain with the company in the same manner as if the conversion has not been done. [case law confirming this contention to be stated]

Section 21: Authentication of documents, proceedings and contracts

CHAPTER II
INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO
[Sections 3 to 22]

Provisions of the Companies Act, 2013:
Section 21: Authentication of documents, proceedings and contracts.
For this provision, no rules are prescribed the Companies Rules, 2013
[Section 21 is brought to force with effect from September 12, 2013.]

Corresponding provisions of the Companies Act, 1956:
Section 54 Authentication of documents and proceedings.

Corresponding provisions of the English Companies Act, 2006:
Sections 43, 44 and 46.

Applicability:
This section is applicable to all companies.

Any document or proceedings requiring authentication by a company, may be signed by any key managerial personnel. It may also be signed by an officer of the company if so duly authorised in this behalf by the Board of Directors of a company.

Similarly contracts made by or on behalf of a company shall be signed.

This provision prescribes a general procedure. And, where the Act prescribes other person or manner of authentication of any document, proceedings or contracts then the same shall be followed.

Where an officer of a company authenticates any document, proceedings or contract, persons dealing with the company may presume that the officer has requisite authority of the Board as an internal process of a company or indoor management of a company.

To authenticate any documents, proceedings or contracts by a company, the Act does not require it to affix its common seal on it.