Acceptance of Deposits under Companies Act, 2013

ACCEPTANCE OF DEPOSITS UNDER COMPANIES ACT, 2013

Funding is a crucial step for the corporates to invest and to expand the business enterprises and its operations for which the funds may be acquired either on internal funds or on external funding in the form of equity or debt. Companies also aim to secure the financial priorities of the organization by adopting cost effective methods b financing through deposits.

To put an effective and stringent scrutinisation, the Companies Act, 2013 has introduced provisions under the deposit regime. Section 73 to Section 76 read with the Companies (Acceptance of Deposits) Rules, 2014 made under the Chapter V of the Companies Act, 2013 regulate the receipt of the money which ought not to be considered as deposit, acceptances and repayment of deposits by the Companies.

What is a Deposit?

As per the Section 2(31) of the Companies Act, 2013 the tem deposit includes any receipt of money by the way of deposit or loan or in any other form by a company but does include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

The above definition of ‘deposit’ is inclusive one and includes any monrey received by way of;

Deposit; or loan; or in any other form where the repayment is time-bound which can be secured or unsecured.

A public company can accept deposits from its members and also from the public if it fulfills certain parameters whereas the private companies are authorized to accept the deposits from its members only.

Amounts not eligible for Deposits

1. Any amount received from the foreign governments, foreign or international banks, multilateral financial institutions etc., any amount received from the Central Government or a State Government or from any other source of the repayment is guaranteed by the Central Government or State Government.
2. Any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature, any amount received from any banking company or from cooperative bank or from a notified banking institution.
3. Any amount received as a loan or financial assistance from Public Financial Institutions, any amount received against issue of commercial paper or any amount received by a company from any other company.
4. Any other amounts as specified under Section 2(31) of the Act read with Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014.

Who is a Depositor?

As per the Rule 2(1) (d), the term Depositor means

1. Any member of the company who has made a deposit with the company in accordance with the provisions of Section 73(2) of the Act; or
2. Any person who has made a deposit with a public company in accordance with the provisions of section 76 of the Act.

Who is an Eligible Company?

Eligible Company as per Rules 2(1)(e) means a public company having a net worth of not less than one hundred crore rupees or a turnover of not less than five hundred crore rupees and has obtained a prior consent in the general meetings of the shareholders by means of special resolution for the purposes of which the resolution has been filed with Registrar of Companies before making any invitation to the public for acceptance of deposits.

No company as per Section 73 can accept or renew deposits from public unless it follows the manner of acceptance or renewal of deposits from public as specified under Chapter V.

Provisions regarding Acceptance of Deposits from Public by Eligible Companies

Only Eligible Companies are permitted to accept deposits from the public in addition to the members of the company. All companies cannot access the public at large for raising deposits though it is permissible to accept deposits from the members.

1. Networth/ Turnover Criteria

A public company having net worth of not less than one hundred crore rupees or turnover of not less than five hundred crore rupees.

2. Passing of Special Resolution

The eligible company is required to obtain prior consent by means of a special resolution in general meeting which has to be filed with the Registrar of Companies.

3. Obtaining of Credit Rating

The eligible company shall be requires to obtain the rating including its networth, liquidity and ability to pay its deposits from a recognized credit rating agency and the copy of the credit is to be filed with the Registrar of Companies along with Return of Deposits in form no. DPT-3.

4. Charge creation on Assets for secured Deposits

Every company which accepts secured deposits from the public shall within thirty days of such acceptance create a charge on its assets.

5. Tenure for Acceptance of Deposits

A company is not permitted to accept or renew deposits which is repayable on demand or in less than six months and the period of acceptance of deposit cannot exceed thirty six months.

6. Appointment of Trustee for Depositors

One or more trustees for depositors need to be appointed by the company for creating security for the deposits and a written consent shall be obtained from the trustees before their appointment.

7. Maximum Amount of Deposits

The amount of such deposit together with outstanding deposits from the members as on the date of acceptance or renewal can be maximum 10% from its members and from the persons other than its members can be maximum 25% excluding deposits from members.

8. Maximum Amount of Acceptable Deposit in case of an Eligible Government Company

Such a company is permitted to accept or renew any deposit together with the amount of other outstanding deposits as on the date of acceptance or renewal maximum up to 35% of the aggregate of it’s paid up share capital, free reserves and securities premium account.

9. Issuance of Circular in the Form of Advertisement

An eligible company inviting deposits should be issued in the form of an advertisement in DPT-1.

10. Maintenance and Using the Amount of Deposit Repayment Reserve Amount

The company is required to deposit on or before 30^th April each year at least 20% of the amount of its deposits maturing during the following financial year and kept it in scheduled bank in a separate bank account to be called as Deposit Repayment Reserve Account.

11. Ceiling on Rate of Interest and Brokerage Payable on Deposits

The brokerage amount and the ceiling interest should not exceed the maximum rate of interest as prescribed by the Reserve bank of India.

12. Filling of Application Form for making Deposits

A company shall accept or renew any deposit whether secured or unsecured only when an application as specified by the company is submitted by the intending depositor for the acceptance of deposit.

13. Nomination

Every depositor may nominate a person at any time whom shall be a person to whom the deposits shall vest in the event of his death.

14. Deposit Receipt

From the date of receipt of money or realization of cheque or date of renewal the company is required to furnish a deposit receipt within a period of twenty one days.

15. Premature Repayment of Deposits

If a depositor requests for premature payment after the expiry of six months but before the actual date of maturity , the rate of interest shall be payable one percent less than rate which would be payable.

16. Disclosure in Financial Statements

A public company shall disclose in its financial statement about the money received through its deposits.

17. Penal Rate of Interest

In case the company fails to repay the deposits on maturity after they are claimed it shall pay penal rate of interest of 18% for the overdue period.

18. Punishment for Contravention

If any eligible company contravenes the deposits rules which are inviting deposits, the company and every officer in default shall be punishable as:

With fine extendable to five thousand rupees; and

In case of contravention in a continuing one with a further fine up to five hundred rupees for every day during the contravention continues.

Provisions regarding Acceptance of Deposits from Members

1. Passing of Resolution

A company has to pass resolution in general meeting of the shareholders for acceptance of deposits.

2. Issuance of Circular

The company has to issue a circular to tis members including a statement therein a statement showing the financial position of the company, the credit rating, the total number of depositors and amount due towards deposits in form DPT-1. The company is required to file a circular with the Registrar within 30 days before the date of issue of circular.

3. Requirement of Deposit Repayment Reserve Amount

The company is required to deposit on or before 30^th April at least 20% of the amount of its deposits maturing.

4. Certification as to No Default in Repayment

The company needs to certify that it has not committed any default in the repayment of deposits accepted either before or after the commencement of the Act.

5. Provision of Security

The company may provide security for the due repayment of the amount of deposit or the interest thereon and shall take the steps for the creation of charge on the property or assets of the company.

6. Application to Tribunal if the Company fails to repay

In case a company fails to repay the deposit or part thereof or any interest thereon, the depositor can apply to the Tribunal for an order directing the company to pay the sum due or for any loss or damages incurred.

7. Tenure for which Deposits can be accepted

A company is not permitted to accept or renew deposits (whether secured or unsecured) which is repayable on demand or in less than six months.

8. Maximum Amount of Acceptable from Members

A company is permitted to accept or renew any deposit from its members including other such deposits outstanding as on the date of acceptance or renewal maximum up to 35% of the aggregate of its paid up share capital, free reserves and securities premium account.

9. Punishment for Contravention

   If any eligible company contravenes the deposits rules which are inviting deposits, the company and every officer in default shall be punishable as:
   With fine extendable to five thousand rupees; and
   In case of contravention in a continuing one with a further fine up to five hundred rupees for every day during the contravention continues.

Forms related to Deposits

• DPT 1 – Circular or circular in the form of advertisement inviting deposits
• DPT 2 – Deposit Trust Deed
• DPT 3 – Return of Deposits
• DPT 4 – Statement regarding deposits existing on the commencement of the Act.

Author: Aathira Pillai,
Dr. D. Y. Patil College of Law