The Companies (Acceptance of Deposits) Rules were introduced by the Government of India in 2014, which have been amended from time to time to ease the acceptance of deposits. This article deals with the conditions and rules regarding the acceptance of deposits by companies.

APPLICABILITY

Applicable on all companies except:

  • a banking company;
  • a non-banking financial company registered with the Reserve Bank of India;
  • a housing finance company registered with the National Housing Bank established under the National Housing Bank Act, 1987 (53 of 1987); and
  • Such other company as the Central Government may, after consultation with the Reserve Bank of India, specify in this behalf.

WHAT CLASSIFIES AS A “DEPOSIT”?

As per companies act, 2013 definition of ‘Deposits’ includes any receipt of money by way of deposit or loan or in any other form, by a company but does not include-

1. any amount received from the Central Government or a State Government, local authority or whose repayment is guaranteed by the Central Government or a State Government;

2. any amount received as a loan or facility from any banking company;

3. Loans taken by a company from another company;

4. Loans from directors or a relative of a director subject to the directors/relative furnishing a declaration that such amounts are not being funded by borrowing or accepting loans or deposits from others and the company disclosing the same in the Board’s’ report;

5. Any amount received from an employee of the company not exceeding his annual salary in the nature of non-interest bearing security deposit; and

6. Such other items mentioned in Rule 2(1)(c) of the Deposits Rules.

The companies under Section 73 of The Companies Act, 2013 is not eligible to accept or renew any of the deposits from the public. However the company can subject to certain conditions accepts or renew deposits from its members.

ACCEPTANCE OF DEPOSITS BY A PRIVATE COMPANY

Private companies and certain IFSC public companies can, after passing resolution in general meeting accept deposits from their members. This should not exceed 100% of the company’s paid-up share capital, free reserves and securities premium account. These companies should file the accepted money to the Registrar in Form DPT-3. The acceptance of maximum deposits limit from the members does not apply to the following private company under the company rules:

  • A private company which is a start-up for 10 years from the date of its incorporation;
  • A private company which is not a subsidiary or associate company to any other company and the borrowings of such company from any financial institutes, banks or body corporate is less than twice of the paid-up share capital or Rs.50 crores, whichever is less and the said company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits.

These companies should file the accepted money to the Registrar in Form DPT-3.

ACCEPTANCE OF DEPOSITS BY OTHER COMPANIES

Companies can, after passing a resolution in general meeting, accept/renew deposits from its members. It may be a secured or unsecured deposit which is repayable on demand or repayable upon notice for a period 6 months to 36 months from the acceptance or renewal date.

However, for the purpose of meeting short term requirements of funds, a company can accept or renew such deposit for repayment earlier than 6 months from the date of acceptance or renew subject to certain conditions which are as follows:

  • Such deposits should not exceed 10% of the company’s paid-up share capital, free reserves and securities premium account, and
  • Such deposits should not be repayable before 3 months from the date of the deposits or its renewal.

If the depositors desire, then there can be acceptance of deposits in joint names. But it should not exceed more than three either with or without the clauses, namely, “Jointly”, “Either or Survivor”, “First named or Survivor”, “Anyone or Survivor”.

The company cannot accept or renew the deposits from the members if the amount of such and other deposits exceeds 35% of the company’s paid-up share capital, free reserves and securities premium account. The company cannot accept deposits of any form for carrying pay brokerage or rate of interest which the RBI prescribes for accepting deposits by non-banking financial companies.

The company cannot alter the prejudice or disadvantage of the depositor, any term and conditions of the deposit, deposit trust deed and deposit insurance contract after the issuance of circular acceptance of deposits.

Credit Rating

Every company shall obtain at least once in a year credit rating for deposits accepted by it. Company shall send to the registrar of companies the copy of rating along with the return of deposit in form DPT-3.

The ranking of credit should not be below the minimum investment grade rating or other specified credit rating for fixed deposits. This rating should be from any credit rating agency under the Non-banking financial companies.

Advertisements or Circulars

The company can invite deposit from its members. This is by issuing a circular or advertisement to all the members. The company issues the circular in Form DPT-1 either by registered post, speed post or electronic mode. The form should contain an attachment of the certificate of the company’s statutory auditor stating that the company has no default regarding the repayment of accepted deposits or in the payment of interest. In case if the company is at default, then the certificate should state that the company has corrected the default and a there is a lapse of 5 years while correcting the default, whatever the case may be. In addition to that, the company should publish the circular in the vernacular newspaper in vernacular language. It should also publish in English newspaper in the English language. They should also place the circular on the company’s website.

Validity:

A circular or advertisement is valid until 6 months from the date of the closure of the financial year or when the financial statement is brought before the company in the Annual General Meeting (AGM). If AGM for the financial year not held, then the latest day on which that meeting should have been held in accordance with the provisions of the Act, whichever is earlier can be taken into account. There will be a new circular in each financial year for inviting the deposits.

Creation of security

The company can provide security by charging on the assets as under the Schedule III of The Companies Act, 2013 excluding intangible assets for the repayment of the deposit or interest amount. This should not be lesser than the remaining unsecured amount. However, the secured deposit amount and interest payable should not exceed the market value of the assets. The security (on the specific movable or immovable property of the company) for the deposits should be in favour of the trustees for the depositors.

Appointment of Trustee for Depositors

Unless the company has one or more trustees, it cannot issue an advertisement or circular inviting secured deposits. The company should put the deposit trust deed in Form DPT-2 at least 7 days before issuing the circular.

A person cannot be a trustee if the said person is:

  • Director, Key managerial personnel, employee or other officers of the company, its subsidiary, holding or associate company. If he is related to any of this person
  • Depositor of the company or related to the depositor
  • Indebted to the company, its subsidiary, holding or associate company
  • Material pecuniary relationship with the company
  • Has Guarantee arrangement relating to the secured principal debts by the interest or deposits

Removal: The removal of a trustee cannot take place before the expiry of his term unless all the directors of the board give consent to it. However, if the company has an independent director, then at least one of them must be present.

Duties of Trustees

  • Ensure that the charged assets of the company and the deposit insurance amount are sufficient for repaying the outstanding secured deposits and the interest
  • Verify that the circular is consistent with the deposit scheme or with the trust deeds. They should also verify if it obliges to these rules and the Companies Act.
  • Check that there is no breach of covenant and also of provisions of the trust deed. Be on guard if any such situation arises
  • Take the initiative to call for a meeting for the depositor holders in the time of need.
  • Monitor the creation of security for the deposits and also the terms of the deposit insurance
  • Perform necessary acts when the security becomes enforceable
  • Carry out actions that are necessary for protecting the interest of the depositors

Meeting of Depositors

If one-tenth of the depositors of value request for a meeting, or due to certain events if there is any default which affects the interest of the depositors then the trustee shall call for a meeting.

Furnishing Deposit Receipts to Depositors

The company must give the depositors or his agent a receipt regarding the amount received as a deposit within 21 days from the realisation of cheque, date of the receipt of the money or the date of renewal.  The receipt should be signed by an authorized officer of the company. The receipt should contain the deposit date, depositor’s name and address, the amount which the company receives as a deposit, the rate of interest that is payable and the date in which the deposit is repayable.

Maintenance of Liquid Assets and the Creation of Deposit Repayment Reserve Account

Every eligible company has to deposit  atleast 20% of the deposits that are maturing in the financial year sum before the 30th of April of every year in any of the scheduled banks. The deposited money is only to repay the deposits.

Registers of Deposits

Every company accepting deposits have to maintain a register at its registered office for deposits accepted/renewed with the following particulars:

  • Depositors’ name, address and PAN
  • Details of guardian in the case of a minor
  • Details of nominee
  • The receipt number of the deposit
  • Date and amount of every deposit
  • The duration of the deposit and the date on which the deposit is repayable
  • Rate of interest of the payable deposits
  • Instruction and mandate regarding the payment of interest and non TDS
  • The date for the payment of interest
  • Details of the security or charge for the repayment of the deposits

The company should enter these details within 7 days of issuing the receipts. The company must preserve the register at least for 8 years.

Filing of Return of Deposits

The company should file the return of deposits in Form DPT-3 with the Registrar before the 30th of June every year. There is no need to file e-form DPT-3 for Nil return. Further auditor’s certificate is mandatory in the case when a return of deposit is filed.

Disclosure in Financial Statement

Company other than private company: Disclose in the notes about the money received from the directors.

Private company: Disclose in the notes about the money received from the directors or relative of the directors.

Deposits matured and claimed but remaining unpaid

Every company has to pay a penal rate of interest for the overdue period at the rate of 18% per annum.

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DISCLAIMER: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and / or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to the relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the author is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

Author Bio

Qualification: CA in Practice
Company: M/s Tarun Mehta & Co.
Location: Indore, Madhya Pradesh, India
Member Since: 10 May 2021 | Total Posts: 1
Mr. Apoorv Jain is a Chartered Accountant by profession and is a partner in Tarun Mehta & co. based in Indore (M.P.). He has more than seven years of experience in the field of Statutory & Tax Audits, Direct and Indirect Taxation including corporate compliances of corporate and non-corporate View Full Profile

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