Companies generally raise funds through issue of equity or preference shares, debentures, and commercial papers and inter corporate loans. Deposits are also one of the sources available to a company to raise funds to meet the short term or long term requirements of the company. In order to protect the interest of the depositors and to stop the malpractices adopted by companies accepting deposits, the companies Act, 2013 read with Companies (Acceptance of Deposit) Rules, 2014 (herein after called ‘the Rules’) made under Chapter V has introduced various conditions for acceptance of deposits by companies.
The Rules are applicable to all companies except:
(i) Banking Companies
(ii) NBFCs registered with RBI
Section 73 to 76 of the Companies Act 2013 (herein after called the Act) read with Rules made under Chapter V of the Companies Act, 2013 regulate the invitation and acceptance of deposits.
In this article, I present below a brief discussion on Acceptance of Deposits by Companies from the members under the Companies (Acceptance of Deposit) Rules, 2014.
1. “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 under Rule 2(1)(c) of the Companies (Acceptance of Deposit) Rules, 2014.
2. “Depositor’’ means,
(i) any member of the company who has made a deposit with the company in accordance with the provisions of sub-section (2) of section 73 of the Act, or
(ii) any person who has made a deposit with a public company in accordance with the provisions of section 76 of the Act.
3. “Eligible company” means a public company as referred to in sub-section (1) of section 76, having a net worth of not less than one hundred crore rupees or a turnover of not less than five hundred crore rupees 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:
Provided that an eligible company, which is accepting deposits within the limits specified under clause (c) of sub-section (1) of section 180, may accept deposits by means of an ordinary resolution;
CONDITIONS FOR ACCEPTING DEPOSIT FROM MEMBERS
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 Chapter V.
A company may, subject to the passing of a resolution in general meeting, accept deposits from its members subject to the fulfilment of the following conditions, namely:—
a) Issuance of a circular to its members;
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, on or before the 30th day of April each year, such sum which shall not be less than twenty per cent. of the amount of its deposits maturing during the following financial year and kept in a scheduled bank in a separate bank account to be called deposit repayment reserve account and the amount so deposited shall not be utilised for any purpose other than for the repayment of deposits;
Provided that the amount remaining deposited shall not at any time fall below twenty percent of the amount of deposits maturing during the financial year.
d) 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 where a default had occurred, the company made good the default and a period of five years had lapsed since the date of making good the default and
e) 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.
EXEMPTION FOR THE PRIVATE COMPANY:
Above mentioned point no. (a) to (e) shall not apply to private company :-
(A) Which accepts from its members monies not exceeding one hundred per cent. of aggregate of the paid up share capital, free reserves and securities premium account; or
(B) Which is a start-up, for five years from the date of its incorporation; or
(C) Which fulfils all of the following conditions, namely:-
1. which is not an associate or a subsidiary company of any other company;
2. if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and
3. such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under this section:
Provided that the company referred to in clauses (A), (B) or (C) shall file the details of monies accepted to the Registrar in such manner as may be specified.
f) Companies shall not accept / renew deposits repayable on demand or upon receiving a notice within a period of less than 6 months or more than 36 months from the date of acceptance / renewal. The company may accept / renew deposits for less than 6 months, if :-
1. Such deposits do not exceed 10% of aggregate share capital and free reserves; and
2. Minimum tenure of be 3 months
g) Rate of interest paid on deposits shall not exceed the maximum rate prescribed by RBI for acceptance of deposits by NBFCs.
h) No terms or conditions of the deposit or trust deed shall be altered or modified after circular is issue and deposits are accepted.
LIMITS ON ACCEPTANCE OF DEPOSITS
1. Companies inviting deposits from members shall dispatch a circular to its members or publish it in the form of an advertisement in Form DPT-1 and a certificate of the statutory auditor of the company shall be attached in Form DPT-1.
2. Such circular, signed by majority of directors, shall be filed with ROC at least 30 days before its issue.
3. Such circular / advertisement shall remain valid for 6 months from closure of the financial year / date on which the financial statements are laid at an AGM / last date on which the AGM was supposed to be held, whichever is earlier.
Explanation: The effective date of issue of circular shall be the date of dispatch of the circular.
CREATION OF SECURITY
Companies inviting secured deposits u/s 73 shall create a charge on its assets, as appearing in the balance sheet under Schedule III, excluding intangible assets for the due repayment of the amount of deposit and interest thereon. Such security (not being pledge), either on movable or immovable property, shall be created in favour of a trustee for the deposit holders.
Provided that the amount of such deposit (principal + interest) shall not exceed the market value of the assets on which charge was created.
The company shall also ensure that the total value of deposit (principal + interest) is secured by way of creation of charge on the assets.
APPOINTMENT OF TRUSTEE FOR DEPOSITORS
1. Every company inviting deposits u/s 73 shall appoint deposit trustees for creating security for its deposits, which shall be mentioned on the circular to be issued. A written consent shall be obtained from the trustee for depositors before their appointment.
2. A deposit trust deed shall be executed in Form DPT-2 at least 7 days before issue of the circular.
3. Deposit trustees cannot be removed after issue of circular / advertisement and before the expiry of his term except with unanimous consent of all directors present at the meeting of the Board, which shall include an independent director, if any.
FORM OF APPLICATION FOR DEPOSITS
No company shall accept, or renew any deposit, whether secured or unsecured, unless an application, in such form as specified by the company, is submitted by the intending depositor for the acceptance of such deposit and declaring that the deposit is not being made from money borrowed by it. The depositor may also make a nomination in this behalf.
Company shall furnish a deposit receipt to the depositor upon acceptance / renewal of a deposit within 21 days of the date of receipt of money or realization of cheques.
REGISTER OF DEPOSIT
1. Companies accepting deposits shall maintain a register of deposits, entering particulars of each depositor, as provided in the Rules, within 7 days of issue of the deposit receipt.
2. Entries made shall be authenticated by a director / company secretary / any officer authorized by the Board.
RETURN OF DEPOSITS TO BE FILED WITH THE REGISTRAR
Every company to which these rules apply, shall on or before the 30th day of June, of every year, file with the Registrar, a return in Form DPT-3 and furnish the information contained therein as on the 31st day of March of that year duly audited by the auditor of the company.
Explanation.- It is hereby clarified that Form DPT-3 shall be used for filing return of deposit or particulars of transaction not considered as deposit or both by every company other than Government company.
DISCLOSURES IN THE FINANCIAL STATEMENT
1. Every company, other than a private company, shall disclose in its financial statement, by way of notes, about the money received from the director.
2. Every private company shall disclose in its financial statement, by way of notes, about the money received from the directors, or relatives of directors
PENAL RATE OF INTEREST.
Every company shall pay a penal rate of interest of eighteen per cent. per annum for the overdue period in case of deposits, whether secured or unsecured, matured and claimed but remaining unpaid.
PENALTY FOR CONTRAVENTION
As per the section 76A, where a company 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 if a company 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 the Company||In addition to the payment of the amount of deposit or part thereof and the interest due, a fine of minimum INR. 1 crore or twice the amount of deposit so accepted, whichever is lower, which may extend to INR.10 crore; and|
|On the officers of the Company||Who is in default: imprisonment up to seven years and with a fine of not less than INR. 25 lakh which may extend to INR.2 crore.|
Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447.
As per the Rule 21, If any company referred to in sub-section (2) of section 73 or any eligible company inviting deposits or any other person contravenes any provision of these rules for which no punishment is provided in the Act, the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first day during which the contravention continues.
PROCEDURE OF ACCEPTANCE OF DEPOSITS FROM 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.
The procedure to accept deposits from members can be summarised as under:-
1. The companies intending to invite deposits from its members shall convene a Board meeting to consider and approve the business to propose and accept deposits from members and decide the day, date, time and place of the general meeting.
2. Issue notice of general meeting to the members of the company.
3. Hold the general meeting and pass resolution for acceptance of deposits.
4. Comply with the Rules prescribed in consultation with RBI and terms and conditions mutually agreed by the company and deposit holders either for acceptance or for repayment of deposits.
*5. Issue circular to the members of the company including therein a statement showing the financial position of the company, the total number of depositors and the amount due towards depositors in respect of any previous deposits and such other particulars as may be prescribed. These details indicate the soundness of the company or a warning about risks involved. The circular shall be published at least once in English language in a leading 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.
*6. File the copy of aforesaid circular in the Form DPT-1 along with such statement with the Registrar within thirty days before the date of issue of circular.
7. In case, a company does not secure the deposits or secures such deposit 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.
*8. A company inviting secured deposits shall provide for security by way of a charge on its assets for the due repayment of the amount of deposit and interest thereon. The company shall submit Form CHG-1 with Registrar for assets other than intangible assets and of the amount of deposit and interest thereon. Secured deposits including interest thereon can in no case exceed the market value of the charged assets assessed by the registered valuer.
*9. After the expiry of 30 days of filing Form DPT-1, the circular in Form DPT-1 along with application form is sent to all members by registered post with acknowledgement due/speed post/electronic mail.
10. Collect duly signed application form along with money from the members.
11. Issue receipts of deposits within 21 days of the receipts of money/realisation of cheque.
12. Maintain register of deposits at its registered office which shall contain the details as prescribed under rule 14 Companies (Acceptance of Deposits) Rules, 2014 from the date of such acceptance.
13. Pay interest as per the rate proposed on agreed terms.
*14. Deposit such sum which shall not be less than fifteen percent of the amount of its deposits maturing during the financial year and the financial year next following and keeping it in a separate bank account called deposit repayment reserve account.
16. Submit return of deposits in Form DPT-3 on or before 30th June each year for information as on 31st March of respective year.
* Exempted for certain private companies as i have mentioned above.
DRAFT RESOLUTION FOR ACCEPTANCE OF DEPOSITS FROM MEMBERS
“RESOLVED THAT pursuant to the provisions of Section 73 of the Companies Act, 2013 (the Act) read with the Companies (Acceptance of Deposits) Rules, 2014 (the Rules) and other applicable provisions, if any, and subject to such conditions, approvals, permissions, as may be necessary, consent of the members be and is hereby accorded to the Company to invite/accept/renew/receive money by way of unsecured/secured deposits from its members.
RESOLVED FURTHER THAT Mr. C, Chairman & Managing Director, be and is hereby authorized to issue the circular which has been approved by the Board of Directors of the company at their meeting held on ____ the (day) of ____ (month), 2019 (year) and which delineates the silent features of the deposit scheme of the company and other relevant particulars as prescribed by the Act and the Rules.
RESOLVED FURTHER THAT Mr. C, Chairman & Managing Director, be and is hereby authorized to have the circular, which has been duly signed by the majority of directors, filed with the Registrar of Companies, NCT of Delhi & Haryana, New Delhi, pursuant to the Rules, and to publish the same in English language in …………………(Name of newspaper) and in Hindi in ………………. (Name of newspaper).
RESOLVED FURTHER THAT for the purpose of giving effect to this Resolution, the Board of Directors be and is hereby authorized to do such acts, deeds, matters and things as Board of Directors may in its absolute discretion consider necessary, proper, expedient, desirable or appropriate for such invitation/acceptance/ renewal/ receipts as aforesaid and matters incidental thereto.”
(Author – CS Brajesh Kumar and can be contacted at [email protected])
DISCLAIMER: The information given in this document has been made on the basis of the provisions of the Companies Act, 1956/2013 and Rules made thereunder. It is based on the analysis and interpretation of applicable laws as on date. The information in this document is for general informational purposes only and is not a legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this document. Under no circumstances whatsoever, we are not responsible for any loss, claim, liability, damage(s) resulting from the use, omission or inability to use the information provided in the document.