Deposits has been an important source of funding for the corporates in India. Under the Companies Act, 1956 regime, provisions related to deposits was less stringent as compared to under its successor.
Companies Act, 2013, initially laid down a kind of prohibition for acceptance of deposit which was later relaxed through various amendments and providing crucial exemptions to private companies. Private Companies can now accept deposits from its member with minimum regulatory compliances.
Before moving towards the regulatory requirements for accepting deposits by the Company, it must be clear what is Deposit and what are excluded from the ambit of deposit or not termed as deposit.
Definition of Deposit:
Deposit has been defined under Section 2(31) of the Companies Act, 2013 further expanded under the Deposit Rules, 2014.
As per Section 2(31), “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.
Accordingly, Rule 2(1)(c) of Companies (Acceptance of Deposit) Rules, 2014, excludes the following amount received by a Company from the ambit of Deposit and shall not be considered as deposits –
i. any amount received from the Central Government or a State Government or local authority or statutory authority, or any amount Whose repayment is guaranteed by the Central Government or a State Government;
ii. any amount received from foreign Governments, foreign or international banks, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India;
iii.Loans or facility from banks;
iv. Loans from Public Financial Institutions/ Insurance Companies;
v. any amount received against issue of commercial paper or any other instruments;
vi. any amount received by a company from any other company;
vii. Any amount received through Public offer. However, if securities not allotted within 60 days and refund not made within 15 days then such amount will be treated as Deposit;
viii. Any amount received from the director of the company and in case of private company also from the relative of the director of the company subject to the condition that the amount has been given from own’s fund and not from borrowings.
ix. Any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge, compulsorily convertible within 10 years;
x. Any amount raised by issue of Unsecured Non-convertible debentures;
xi. Non-interest-bearing security deposit from employee of the company under the contract of employment to the extent not exceeding his annual salary;
xii. Any non-interest bearing amount received and held in trust;
xiii. Any amount received in the course of business –
(a) As advance for supply of good or services provided that such goods or services are supplied within 365 days of the receipt of advance;
(b) As advance in connection with consideration for an immovable property provided such advance is adjusted against such property in accordance with the terms of the agreement;
(c) As security deposit for the performance of the contract;
(d) As advance under long term projects for supply of capital goods;
Provided that if the amount received under (a), (b) & (d) becomes refundable due to lack of necessary permission or approval to deal in the concerned goods or services, then the amount received shall be deemed as deposit on the expiry of 15 days from the date they become due for refund.
(e) As advance towards consideration for future warranty or maintenance contract;
(f) As advance received which is allowed by any sectoral regulator;
(g) As advance for subscription towards publication;
xiv. Any amount of unsecured loan brought in by the promoters subject to the fulfilment of the following conditions:
(a) the loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance;
(b) the loan is provided by the promoters themselves or by their relatives or by both; and
(c) the exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter;
xv. Any amount accepted by a Nidhi Company;
xvi. Any amount received by way of subscription in respect of a chit under the Chit Fund Act, 1982;
xvii. Any amount received by the company under any collective investment scheme;
xviii. An amount of 25 lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person;
xix. Any amount received by a company from registered Alternate Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts and Mutual Funds.
The provisions of Deposits are covered under the following sections and their relevant rules under the Companies Act, 2013 –
- Section 73 – Prohibition on Acceptance of Deposit from Public.
- Section 74 – Repayment of deposits etc. accepted before Commencement of CA, 2013
- Section 75 – Damages for Fraud
- Section 76 – Acceptance of deposit from public by certain Companies
- Section 76A – Punishment for contravention of Section 73 or Section 76.
On a very first note, Section 73 prohibits every company (except banking company, NBFCs and) from inviting, accepting or renewing deposits from the public. However, such companies can accept deposits from its members subject to the conditions specified under the Act.
However, Section 76 allows Specified Public Companies to accept deposits from public subject to certain conditions which has been discussed later.
Public Deposits:
Who can accept Deposits from Public?
A Public Company having a net worth of not less than 100 crore rupees OR a turnover of not less than 500 Crore rupees AND which has obtained the prior consent of shareholders through Special Resolution AND such resolution has been filed with the registrar before inviting deposits.
However, if the company is accepting deposits within the limit of Section 180(1)(c) i.e. if the total borrowing of the Company doesn’t exceed aggregate of its paid-up share capital, free reserves and securities premium account, then the consent of shareholders through Ordinary Resolution will suffice.
Conditions on accepting deposits from Public or renewing deposits by Aforementioned Companies:
- No deposits which are repayable on demand shall be accepted or renewed.
- No deposits which are repayable on notice within a period of 6 months or more than 36 months shall be accepted or renewed.
- A company may accept deposits repayable earlier than 6 months but not earlier than 3 months, to meet its short-term fund requirements provided that such deposits doesn’t exceeds 10% of the paid-up share capital, free reserves and securities premium account of the company.
- Company intending to invite deposits shall issue a circular in the form of advertisement in form DPT-1.
- If the deposit to be accepted from public along with other deposits excluding the deposits from its members, outstanding on the date of acceptance or renewal exceeds 25% (35% in case of Government Company) of the aggregate of its paid-up share capital, free reserves and securities premium account of the company, then such company shall not accept such deposits.
- No deposit shall be invited or renewed wherein the rate of interest or brokerage fee exceeds the maximum rate of interest or brokerage prescribed by the RBI for acceptance of deposits by NBFCs.
- Every such company shall obtain credit rating at the time of invitation of deposits and once in a year for deposits accepted by it.
- Copy of credit rating obtained shall be furnished to ROC along with return of deposits in form DPT-3.
- Every Company having outstanding deposits shall deposit atleast 20% of the amount of its deposits maturing during the following financial year, on or before 30th April of each year and such amount shall be kept in a separate bank account to be called deposit repayment reserve account.
Deposits from its members by Public Company:
A Public Company can accept the deposits from its members if it fulfils the following conditions:
- Obtaining the approval of Shareholders in General Meeting through Ordinary Resolution.
- Issuance of circular for inviting deposits to all its members in form DPT-1 after delivering the circular to ROC atleast 30 days prior to the date of issue of circular to members.
- No deposits which are repayable on demand shall be accepted or renewed.
- No deposits which are repayable on notice within a period of 6 months or more than 36 months shall be accepted or renewed.
- A company may accept deposits repayable earlier than 6 months but not earlier than 3 months, to meet its short-term fund requirements provided that such deposits doesn’t exceeds 10% of the paid-up share capital, free reserves and securities premium account of the company.
- If the deposit to be accepted from its members along with other deposits, outstanding on the date of acceptance or renewal exceeds 35% (100% for Specified IFSC Public Company) of the aggregate of its paid-up share capital, free reserves and securities premium account of the company, then such company shall not accept such deposits.
- No deposit shall be invited or renewed wherein the rate of interest or brokerage fee exceeds the maximum rate of interest or brokerage prescribed by the RBI for acceptance of deposits by NBFCs.
- Every Company having outstanding deposits shall deposit atleast 20% of the amount of its deposits maturing during the following financial year, on or before 30th April of each year and such amount shall be kept in a separate bank account to be called deposit repayment reserve account.
- Every Company inviting deposits must certify that the Company has not defaulted in the repayment of deposit or interest in the past and if default had occurred then the default was made good and 5 years had lapsed from the date of making the default good.
- Every Company shall file return of such accepted deposits with ROC in form DPT-3.
Deposits from its members by Private Companies:
A private Company may accept deposits from its members after obtaining the approval of the members in General Meeting through Ordinary Resolution and subject to fulfilling the following conditions:
- No deposits which are repayable on demand shall be accepted or renewed.
- No deposits which are repayable on notice within a period of 6 months or more than 36 months shall be accepted or renewed.
- A company may accept deposits repayable earlier than 6 months but not earlier than 3 months, to meet its short-term fund requirements provided that such deposits doesn’t exceeds 10% of the paid-up share capital, free reserves and securities premium account of the company.
- Amount of deposit to be accepted doesn’t exceed 100% of the aggregate of paid-up share capital, free reserves and securities premium account.
- Files returns of such accepted deposits with ROC in form DPT-3.
However, the maximum limit for acceptance of deposit from its members shall not be applicable on the following classes of Private Companies:
1. Private Company which is a start-up, for 5 years from the date of its incorporation;
2. Private Company which fulfils the following conditions:
a) It is not an associate or a subsidiary of any other company;
b) Its borrowings from banks or financial institutions or any body corporate is less the twice of its paid-up share capital or 50 crore rupees, whichever is less; and
c) It has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits.
3. No deposit shall be invited or renewed wherein the rate of interest or brokerage fee exceeds the maximum rate of interest or brokerage prescribed by the RBI for acceptance of deposits by NBFCs.
The Deposit provision bifurcates the deposit accepting companies into following class:
- Specified Public Company accepting deposits from public;
- Public Company accepting deposits form its members;
- Private Company accepting deposits from its members.
It is to be noted that any amount received from Director of the Company has been excluded from the definition of deposit and thus doesn’t attracts the provisions of deposit. In case of Private Limited Company, any amount received from relative of director also shall not be considered as deposit.
The article has been written by Siddarth Agarwal, Practising Company Secretary carrying his practice in Delhi-NCR and Guwahati. Due care has been taken to ensure the correctness of information. However, this article cannot be construed as legal opinion and writer will not be liable for any claim. Any suggestions are welcome to increase the effectiveness of the article. For detailed analysis on any of the provision or for any query, writer can be contacted on the given contact details.
You can reach him on +91 99999 842474 or +91 84710 19192 or through email – [email protected]
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Why NBFC companies keep 20% of the maturing amount for repayment in next year. Why not total 100% of the maturing amount???