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Deposits by the Private Companies and Public Companies are governed by Section 73 and 76 of the Companies Act, 2013 and Companies (Acceptance of Deposits) Rules, 2014.

Article explains who can be Depositor, Meaning of Deposits, Companies not falling governed by Companies (Acceptance of Deposits) Rules, 2014, Items not considered as deposits as per rule 2(1) (c) of Companies (Acceptance of Deposits) Rules, 2014, Rules for Acceptance of Deposit in case of Private Companies / Public Companies from Public and from Members, Exception to Conditions under Section 73(2) –Clause (a) to (e),  Deposits from Directors and their relatives, Deposits from Directors who are also shareholders, Conditions for Acceptance of Deposits, Creation of Security for deposits, Appointment of Trustee for Depositors, Return of Deposits with ROC, Penal Interest and Punishment for Contravention of Section 73 or Section 76.

SL. NO. PARTICULARS INFORMATION/ INPUTS
1. Depositor 1.   Any member of the company who has made a deposit with the company u/s. 73(2); or

2.  Any person who has made a deposit with an eligible company u/s. 76

2. Meaning of Deposits Deposit includes any receipt of money by way of deposit or loan in any other form by a company but not include few items as per rule 2(1) (c) of Companies (Acceptance of Deposits) Rules, 2014 or such categories of amount as prescribed by RBI
3. Types of Companies not covered  to these rules – The following companies are not covered in these rules –

1.   A banking company;

2.  A non-banking financial company as defined in the Reserve Bank of India Act, 1934 (2 of 1934) registered with the Reserve Bank of India;

3. A housing finance company registered with the National Housing Bank established under the National Housing Bank Act, 1987 (53 of 1987); and

4. Any other company specified by the Central Government under the proviso to sub-section (1) of Section 73 of the Act.

4. Items not considered as deposits as per rule 2(1) (c) of Companies (Acceptance of Deposits) Rules, 2014 1.   Any amount received from the government or guaranteed by the government, foreign government/foreign Bank.

2.  Any amount received as a loan or facility from any Public Financial Institutions, Insurance Companies or Banks

3.  Any amount received from a company by a company.

4.  Subscription to securities and call in advance.

5.  Any amount received from the director of the company or a relative of the director of the Private Company, who held the positions at the time of lending.

6.  Any amount received by the company from an employee.

7.  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 or as a security deposit for the performance of the contract for the supply of goods or provision of services.

8.  Unsecured loans from promoters.

9.  Any other amount which is not considered as a deposit under Rule 2(1)(c).

5. In case of Private Companies-4

1.Acceptance of Deposits from Public

2. Acceptance of Deposits from Members

As per Section 73-

(1) all Private companies are prohibited to invite, accept or renew deposits from the public.

(2) provides that a company may accept Deposits from its Members subject to the following conditions-

a. obtaining consent of members by passing ordinary resolution. If borrowing limit is exceeded as per sec 180(1)(c) of the act, Consent of members by passing Special Resolution

b.  Filing of Circular with ROC in Form DPT-1 (before issuing to members). Such circular includes financial position of the company, credit rating if any, total number of depositors if already accepted earlier, deposit amount due for repayment and any other details as specified by the Government. Circular shall be approved by Majority of Directors.

c.  Depositing in the bank min of 20% of maturing amount of deposit in the Scheduled bank in a separate bank account called deposit repayment reserve account.

d.  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.

e. Providing Security including create a charge on the assets or property of Company for the repayment of deposit including interest.

(3) Once the Company is accepted the deposits by following the above procedure, the same needs to be repaid with interest as per the terms and conditions.

(4) If the Company fails to repay the deposits or any part thereof or any interest thereon, then the depositor 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 minimum % of deposit amount deposited in repayment reserve account shall not be used by the company for any purpose other than repayment of deposits.

Note: The company should not accept deposit repayable on demand or repayable on notice within a period of less than six months or more than thirty-six months from the date of acceptance or renewal of such deposit

6. Exception to Conditions under Section 73(2) 5–Clause (a) to (e) The above procedure or conditions shall not apply to private companies in the following scenarios-

1.  When it accepts from its members as deposits upto 100% of aggregate Paid up Share capital, free reserves and securities premium account

2. In case of start-up, for 5 years from the date of Incorporation.(without Limit)

3. Which fulfills all of the following conditions(without Limit), namely-

a. which is not an associate or a subsidiary or any other company

b. If the borrowing from banks or financial institution is less than twice of its paid-up capital or 50 crores, whichever is lower.

c. which is not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits.

Provided that the Company referred with the above scenarios is required to file the details of deposits accepted to the registrar in Form DPT-3.

7. In case of Acceptance of Deposits from Public 6 Companies 1. Specified IFSC Public Company – The limit of Acceptance of Deposits is up to 100% of its Paid-up Capital, Securities Premium and free Reserves.

2.  Eligible Companies – The limit of Acceptance of Deposits is up to 10% of its Paid-up Capital, Securities Premium and free Reserves.

3.  Other Companies – The limit of Acceptance of Deposits is up to 35% of its Paid-up Capital, Securities Premium and free Reserves.

The conditions as per section 73(2) are to be complied in all the above mentioned cases.

Explanation:

1. Specified IFSC Public company means an unlisted public company which is licensed to operate by the Reserve Bank of India or the Securities and Exchange Board of India or the Insurance Regulatory and Development Authority of India from the International Financial Services Centre located in an approved multi services Special Economic Zone set-up under the Special Economic Zones Act 2005 (28 of 2005) read with the Special Economic Zones Rules, 2006:

2. Eligible Companies– a public company having a net worth of minimum 100 crores or a turnover of minimum 500 crores and which has obtained the prior consent of the company in general meeting by means of a special resolution and also filed the said resolution with the Registrar of Companies before making any invitation to the Public for acceptance of deposits:

8. Deposits from Directors 7 Any company can accept amount from a person who is its director out of his own funds.

For this purpose, the director will have to submit a declaration with the Company that amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others.

Such amounts are not deposits as per Companies (Acceptance of Deposit) Rules, 2014

Amounts received by the company from its directors which is arranged with his own funds are to be reported in Directors Report and in Financial Statements(Notes to accounts)

9. Deposits form Relatives of Directors Only Private companies are allowed to accept amounts from relatives of a director out of their own funds. For this purpose, the relative will have to submit a declaration with the Company that amount is not being given out of funds acquired by them by borrowing or accepting loans or deposits from others.

Such amounts are not deposits as per amended Companies (Acceptance of Deposit) Rules, 2014.

Amounts received by the company from relatives of directors which is arranged out of their own funds are to be reported in Directors Report and in Financial Statements(Notes to accounts)

10. Deposits from Directors who are also shareholders When an amount is received from a person who is also a Director and a Shareholder:

Not Considered Deposit – If the Director is given amount out of his own funds

Considered Deposit and Contravention under section 76 – If the Directors of the private company is given amount out of borrowed funds as only eligible companies can accept deposit with specified limit.

Also the company accepting such deposit from the director would attract fine u/s 76A for the contravention.

Considered DepositIf the amount is received from the Shareholder u/s 73(2) whether out of own funds or borrowed Funds

11. Conditions for Acceptance of Deposits For purpose of its short-term requirements of funds, the company may accept or renew such deposits for repayment earlier than six months from the date of deposit or renewal respectively provided:

Such deposits shall not exceed 10% of the aggregate of the paid-up share capital and free reserves of the company, and

Such deposits are repayable on or after 3 months from the date of such acceptance or renewal thereof.

Eligible Companies u/s 76 (deposit from members / public)

For deposit from Members

Existing Deposit + New Deposit <=10% of aggregate of the paid-up share capital and free reserves of the company.

For deposit from Public

Existing Deposit + New Deposit (excluding deposit from members) <= 25% of aggregate of the paid-up share capital and free reserves of the company.

12. Creation of Security Every Company referred in sec 73(2) and every eligible Company accepting deposit shall provide for security by creating a charge on its assets excluding intangible assets of the company

The security (not being in the nature of a pledge) for deposits shall be created in favour of a trustee for the depositors on:

(a) specific movable property of the company, or

(b) specific immovable property of the company wherever situated, or any interest therein

13. Appointment of Trustee for Depositors ♣ Every Company referred in sec 73(2) and every eligible Company inviting for secured deposits has to appoint one or more trustees for depositors for creating security for the deposits.

♣ A company has to obtain written consent from the trustee for depositors before their appointment and execute a trust deed in Form DPT-2

♣ A person or trustee shall not be appointed as trustee of the Depositor, if the proposed trustee-

(a)  is a director, key managerial personnel or any other officer or an employee of the company or of its holding, subsidiary or associate company or a depositor in the company;

(b) is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such holding company;

(c) has any material pecuniary relationship with the company;

(d) has entered into any guarantee arrangement in respect of principal debts secured by the deposits or interest thereon;

(e) is related to any person specified in clause (a) above.

A Trustee cannot be removed from office after the issue of circular or advertisement and before the expiry of his term except with the consent of the Board of Directors

(Provided that in case the company is required to have independent directors, at least one independent director shall be present in such meeting of the Board).

14. Return of Deposits with ROC 9 Every Company has to file Form DPT-3 with registrar on or before 30th June of each year

It is mandatory to furnish not only details of deposits but also the particulars of transaction which are not deposits in Form DPT-3 along with Auditors Certificate.

15. Penal Interest 9 A company shall have to pay an interest of 18% p.a. for the overdue period of deposits, matured and claimed but remaining unpaid.
16. Punishment for Contravention of Section 73 or Section 76. 10 Contravention:

♣ Accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 or section 76 or rules made thereunder or

♣ Fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made thereunder or such further time as may be allowed by the Tribunal under section 73

On Company

♣ Payment of the amount of depositor part thereof and the interest due; and

♣ Fine is Rs. 1 Crore or twice the amount of deposit, whichever is lower and also which may extend to Rs. 10 Crore

An officer in default

♣ Imprisonment which may extend to 7 years; or

♣ Fine which shall not be less than Rs. 25 Lakhs but which may extend to Rs. 2 crores; or

♣ Both

If it is proved that the officer of the company who is in default, has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be personally liable for action under Section 447 of Companies Act, 2013. (fraud).

Any suffered person or association of person can file a suit or proceedings for the loss or damages incurred towards non-repayment of deposits or part thereof or any interest thereon

Conclusion: Acceptance of Deposits is allowed in case of public companies and private companies with limitations from its members and list of provisions being designed for different classes of companies under the guidance of regulatory authorities’ viz., Ministry of Corporate Affairs and Reserve Bank of India. In order to keep control on exploitation of Deposits received form public and its members, much terms and conditions have been introduced. In case of any contravention comes to light, stringent penal provisions shall be attracted.

Authors- This article is authored by Mrs. Asha Diwakar (Practicing Company Secretary, Bangalore) who is Co-founder and Designated Partner of M/s CLAAT Corporate Advisors LLP (Chhota CFO).  Mrs. Asha Diwakar may be contacted at [email protected]/ [email protected] and +91 973 973 6999

Chhota CFO (www.chhotacfo.com) offers a range of services and integrated solutions in the areas of India corporate regulations, compliance, accounting and taxation for Start-ups, SMEs and Corporates – right from incorporating new companies, statutory registrations, secretarial compliance, bookkeeping and accounting, tax consulting & filing, audit & assurance and other associated professional services to start, maintain and grow your business.

Disclaimer: Utmost care has been taken to prepare the article. However, inadvertently if any error occurs, please note that the authors shall not be held responsible for any such cause. The content published is only for educational purpose and shall not be construed as rendering of any professional advice in any manner whatsoever. The readers must exercise their own judgement and refer the original source before any implementation. The content is an original work of the authors and may be used only after prior written permission.

Priyanka Sethia Asha Diwakar

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