Deposits under Companies Act 2013 and Related NCLT Rules

ACCEPTANCE OF DEPOSITS BY COMPANIES:

SECTION 73 TO 76A OF THE COMPANIES ACT, 2013 AND COMPANIES (ACCEPTANCE OF DEPOSITS) RULES, 2014.

As the financial year started, and Annual General Meeting is round the corner of some or the other Company, I would like to highlight the topic “DEPOSITS”. I am writing this article in regards to clear the conceptuality chaos in the minds of people regarding the Deposits so accepted by the company under the provisions of Companies Act, 2013 and have tried best to my knowledge to simplify the same in terms of understanding so we can take advantage of same, establish themselves and figure out the compliances so applicable to related companies along with the amendments/ clarifications/exemptions so notified via notification so issued dated 13^th June 2017 by Ministry of Corporate Affairs. I Would Like To Divide My Article into Two Sections (1) After Commencement Of Act 2013 And (2) Before Commencement Of Act 2013. Only Sections Conceptuality Has Been Discussed In This Article.

In this article, the author begins with referring the sections of companies Act, 2013 in regards to Deposits.

The term DEPOSITS is defined under the Companies Act, 2013 (“2013 Act“) to include any receipt of money by way of deposit or loan or in any other form by a company.”

Deposits can be accepted by the Companies under Section 73 to Section 76 of the Companies Act, 2013 read with Companies (Acceptance of Deposits) Rules, 2014 as amended time to time

(1) AFTER COMMENCEMENT OF COMPANIES ACT 2013 i.e. on after 01-04-2014

ACCEPTANCE OF DEPOSITS

SECTION 73	SECTION 73 & 76	OTHER COMPANIES allowed by RBI
Private Companies/ Public Companies having i. Net Worth < 100 CR. ii. Turnover  < 500 CR	Eligible Public Companies i. Net Worth ≥ 100 CR. ii. Turnover ≥ 500 CR	Banking Companies Non- Banking Companies Companies notified by CG
CAN ACCEPT ONLY FROM MEMBERS	CAN ACCEPT MEMBERS AS WELL AS PUBLIC	CAN ACCEPT MEMBERS AS WELL AS PUBLIC

Subject  to certain conditions under section 73 (2)(a) to(f)

By passing special resolution

• Issuance of Circulars to Members.
• Filing of Circular with ROC
• Deposits repayment Reserve Account
• Deposits Insurance

Certificate regards to Compliances falling at place Secured or unsecured Deposit

SECTION 73 (2)(a) to(f)

SHALL  NO APPLY TO PRIVATE COMPANIES

(Notification dated 13th June 2017; Exemption Available to Private Companies)

In the principal notification, in relating thereto, the following serial SUBSTITUTED, namely: -the Table, for serial number 6 and the entries number and the entries relating thereto shall be:

Chapter V, clauses (a) to (e) of subsection (2) of SECTION 73: shall not be applicable to following private companies.

(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 fulfills all of the following conditions, namely:-

(a) which is not an associate or a subsidiary company of any other company;

(b) if the borrowings of such a company from banks or financial institutions or anybody corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and

(c) 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.”

READ WITH COMPANIES (ACCEPTANCE OF DEPOSITS), RULES 2014.

Rule 3	TERMS AND CONDITIONS: 1. Deposit shall be accepted or renewed for a period o Minimum 6 months o Maximum 36 months If the Company wants to extend the Maximum time limit for deposits, it needs to renew the existing deposits. 1. A company may accept or renew deposits for less than 6 months for its short-term purposes if it satisfies the following conditions: o Such deposits shall not exceed 10% of Paid up capital + free reserves of the Company. o Such deposits shall be repaid only after minimum 3 months. Deposit holders can be joint holders and can nominate any person on their death to be such holder LIMIT OF ACCEPTANCE UNDER SEC 73 LIMIT OF ACCEPTANCE UNDER SEC 76 (Eligible Companies) LIMIT OF ACCEPTANCE BY GOVERNMENT COMPANIES It cannot accept or renew deposit when that proposed deposits including existing deposits are more than 35% paid up capital and free reserves. It proposes to raise deposits from members and that proposed deposits including existing deposits accepted from members are more than 10% of the paid-up capital and free reserves. It proposes to raise deposits from other persons (not being specific to members) and that proposed deposits including existing deposits (excluding deposits not accepted from members) are more than 25% paid up capital and free reserves. It cannot accept or renew deposit when that proposed deposits including existing deposits are more than 35% paid up capital and free reserves. Every eligible Company shall obtain, at least once, in a year, credit rating for deposits accepted by it and a copy of the rating shall be sent to ROC along with the return of Deposits in FORM DPT-3.
Rule 4	FORMS AND CIRCULARS: TO be issued to all members in FORM DPT-1 and a copy of the advertisement to be served to ROC not less than 30 days before the date of issue.
RULE 5	DEPOSIT INSURANCE 1. Providing insurance is mandatory for Company accepting deposits. 2. Company shall enter into a contract with insurance agency before 30 days of issue of circular advertisement. In rule 5, in sub-rule (1), for the proviso, the following proviso shall be substituted, namely: — “Provided that the companies may accept deposits without deposit insurance contract till the 31st March 2018 or till the availability of deposit insurance product, whichever is earlier.” (notification dated: 11th may, 2017)
RULE 6	CREATION OF SECURITY 1. The Company accepting secured deposits shall create a charge on assets. 2. The amount so secured shall not be less than the amount of deposit and interest thereon, which is not been insured under the insurance cover. 3. Security cannot be created on intangible assets. 4. Create charge on assets and file Form CHG. 9 with ROC within such creation
RULE 7	APPOINTMENT OF TRUSTEES 1. Appoint one or more trustees 2. Execute a deposit trust deed 3.  IN form DPT-2 at least 7 days before issuing circular. Trustee cannot be o    Director or KMP or Officer or Employee of the 1.  Company 2. Holding Company 3.  Subsidiary Company 4. Associate Company o    Indebted to the Company’s mentioned above o    any material pecuniary relationship with the company o    Is a related party. The trustee cannot be removed before his expiry of the term until and unless his approval is given by the consent of all the directors. Kindly refer rule
RULE 13	DEPOSIT REPAYMENT RESERVE ACCOUNT 1. Every year, on or before 30th April, Company shall create a Deposit repayment reserve with a Schedule Bank having fund equal to 15% of deposits to be mature in the financial year and next financial year.
RULE 16 & 16A	RETURN OF DEPOSIT 1. Every Company shall file a return of Deposits in DPT-3 on or before 30th June till the company has deposited with ROC. 2. Disclosure to be made in Financial Statement

1)  BEFORE COMMENCEMENT OF COMPANIES ACT 2013 i.e prior to 01-04-2014.

SECTION 74:  This new section provides that where the Company has accepted deposits before the commencement of this Act:

1. The amount of such deposits or any interest thereon shall be repaid within 1 year from such commencement or

2. From such payments are due, whichever is earlier.

Extension of time for the repayment of deposits may be granted by the Tribunal on an application made by the company.

READ WITH COMPANIES (ACCEPTANCE OF DEPOSITS), RULES 2014.

Procedure for Companies which already accepted deposits:

1. File within a period of 3 months from the commencement of this Act Form DPT – 4 with ROC.

2. Shall repay all the deposits within

o   one year from the commencement of this Act i.e., by 31st March 2015 or

o   On the date of which deposits are becoming due, whichever is earlier. Which mean all the deposits should be repaid by 31st March 2015 even if they are not maturing or else a penalty of Rs. 1 Crore. The solution for this is provided; the Company can approach Tribunal for extension of the repayment period.

o   If the Company renew existing deposits it shall follow the provisions of the new act.

PENALTY PROVISIONS:

CONTRAVENTION UNDER FOLLOWING SECTIONS	PENALTY
SECTION 73	Failure to pay deposits under Sec 73- application to be made to TRIBUNAL BY DEPOSITORS. for Companies which are going to accept new Deposits or renew existing deposits: Maximum – Rs. 5000/- and In the case of Continuing default then a maximum fine of Rs. 500/- every day on Company and every officer
SECTION 74	In case of Fraud UNDER SEC 447 1.  Imprisonment of minimum 6 months and maximum 10yrs. 2. Penalty of minimizing the amount liable and maximum of 3 times the amount
SECTION 76	Company 1. Minimum – Rs. 1 Crore 2. Maximum – Rs. 10 Crore Officers 1. Imprisonment up to 7 years [or] 2. Penalty of minimum Rs. 25 lakh and maximum Rs. 2 Crore [or]Both imprisonment and penalty

PROCEDURE TO RAISE DEPOSITS:

1. Conduct Board Meeting and Pass Board Resolution for consideration of same in General meeting.

2. In the case of eligible Company General meeting shall be held for passing

a. Special resolution, if the proposed deposits to be accepted along with all the borrowings of the Company are more than paid up capital and free reserves.

b. In all the other cases Ordinary resolution would suffice.

3. In case of Company not being eligible Company,it has to hold a General meeting and pass a special resolution, if the proposed deposits to be accepted along with all the borrowings of the Company are more than paid up capital and free reserves

4. Obtain Credit Rating for the Company.

5. Obtain insurance before 30 days of issuing circular or advertisement for acceptance or renewal.

6. Approving the circular (format of Circular in Form DPT – 1) to be issued for accepting a deposit in a Board meeting and if necessary, call for General Meeting.

7. After passing of a Special resolution, the company shall file Form MGT 14 within 30 days of passing the resolution with RoC.

8. File the Copy of Circular with RoC before 30 days of issue of Circular.

9. Issue circular inviting deposits in the name of the Board of Directors

10. Publish Advertisement and Eligible Company shall upload the Circular on the Website.

11. Every year, on or before 30th April, Company shall create a Deposit repayment reserve with a Schedule Bank having fund equal to 15% of deposits to be mature in the financial year and next financial year.

12. Every Company shall file a return of Deposits in DPT-3 on or before 30th June till the company has deposits with ROC.

APPLICATION TO NCLT UNDER SECTION 73(2) AND UNDER SECTION 74 (2)

RULE 73 OF NCLT RULES Application by deposition for repayment of deposit or interest	Where a company fails to repay the deposits or any part thereof or any interest thereon, an application under  sub-section (4) of section 73 of the Act or section 45QA of the Reserve Bank of India Act, 1934 (2 of 1934), The application shall be filed with the Tribunal, in Form No. NCLT. 11 – by  all or any of the depositors concerned, or where the deposits are secured, by the deposit trustee along with following documents: 1. Copy of the deposit receipt 2. A copy of the correspondence exchanged with the company. 3. Bank draft evidencing payment of application fee. 4. Any other relevant document.
Application to allow further time as considered reasonable to the company to repay deposits.  Under 74 (2)	(5) The application under sub-section (2) of section 74 and subsection (2) of section 76 read with section 74(2) shall be in Form NCLT-1 same shall be served to ROC before a date of hearing along with following documents. 1. Names and addresses of the officers of the company. 2. Full details of small depositors such as names, addresses, an amount of deposits, a rate of interest, dates of maturity and other terms and conditions of deposits. 3. Reasons for non-payment or late payment. 4. Annual Reports for the last three years. 5. Projection and cash flow statement for the next three financial years duly certified by Statutory Auditors of the company. 6. Any other relevant document
The Registrar of Companies in consultation with Regional Director shall submit to the Tribunal, the report on the affairs of the company within thirty days from the date of the receipt of the application and Tribunal may consider any observation made by the Registrar of Companies before passing an order.

DISCLAIMER: The entire contents of this document have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all or any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document. READER SHOULD SEEK APPROPRIATE COUNSEL FOR THEIR OWN SITUATION. I SHALL NOT BE HELD LIABLE FOR ANY OF THE CONSEQUENCES DIRECTLY OR INDIRECTLY.

Hope my article helps you all for conceptual and procedural clarity. Any other suggestions /opinions are welcomed. Free to contact me for specific formats

(Author-CS Anjali Gorsia, Company Secretary In Practice from Nagpur (Maharashtra) and can be contacted at csanjali.gorsia@gmail.com)