Swati Takkar

Swati TakkarOverview of dealing sections, provisions & rules

  1. Chapter V of Companies Act, 2013
  2. Section 73 to 76 of Companies Act, 2013
  3. Companies ( Acceptance of Deposits ) Rule, 2014
  4. Companies ( Acceptance of Deposits ) Amendment Rule, 2015
  5. MCA general circular No. 09/2015

Applicability

Provisions of chapter V of Companies Act, 2013 i.e. section 73 to 76 is applicable to all classes of companies except the following

  • Banking companies
  • Housing Finance companies
  • Non-Banking Financing companies
  • Any other company CG may prescribe

Explanation- These classes of companies mainly engaged in the business of financing by taking deposits from one person & lending to the others and these classes of companies are governed by a special strict act such as banking act, so it will be like double compliances for the them if the provision of this chapter would be applicable on them. So that’s why that’s why these companies are exempted for the preview of this chapter.

Definition of Deposits [Rule 2]

Definition of “Deposits” – As per Section 2(31) of companies act 2013 ‘Deposit’ includes

  • Any receipt of money by way of deposit or loan or in any other form by the companies ,
  • But doesn’t include such categories of amounts as may be prescribed in consultation with RBI

Section 2(31) of companies act 2013, should be read with rule 2(c ) of Companies ( Acceptance of Deposits ) Rule, 2014, which specifies some amount received by companies which shall not be treated as deposits

  • Amount received from CG, SG, local Authority, Statutory authority,
  • Amount received from foreign
    • Foreign Government
    • Foreign OR International Bank
    • Multilateral Financial Institutions
    • Foreign export credit agencies
    • Foreign Collaborators
    • Foreign bodies, Corporative & foreign or Foreign citizen
    • Foreign Authorities, or
    • Person resident outside India ( subject to Provisions of FEMA)
  • Amount received as a loan or facility from banking companies, SBI etc. notified by CG as per RBI act.
  • Amount received as a loan or financial assistance from Public Financial Institutions, Regional Financial Institution, Insurance Companies and scheduled Bank.
  • Amount received against commercial papers
  • Amount received by a company from any other company ( which is normally treated as Inter Corporate deposits ,ICD)
  • Any amount received or held towards subscription of any securities, including share application money or advance towards allotment on which allotment is pending. But allotment should not be pending more than 60 days. Company should refund the amount within 15 days from the end of 60 days of receiving advance. ( Reference Companies acceptance of deposit amendment rule 2015)
  • Amount received from existing directors, subject to the condition that director should give a declaration that the money so deposited is not being borrowed from any other person.
  • Bonds debentures, secured by first charge or on any assets (not being intangible assets or convertible into shares within 5 years)
  • Any amount received from employee, not being more than his annual salary
  • Any non-interest bearing amount received or held in trust
  • Business advances ( short term advances taken for ordinary course of business)
  • Amount received against the consideration for immovable property, provided such amount will be adjusted as per the agreement
  • Security deposit for performance of the contract
  • Amount received for long term project
  • Any amount brought in by promoter in stipulation of any lending financial institution or bank
  • Amount received by Nidhi Companies.

Conditions of Section 73 (2) (a) to (e)

a) Issue a circular to it Members including a statement showing

  • Financial position of the company
  • Credit rating obtained
  • Total no. of deposits & amount due towards it
  • Such other particulars of form as may be prescribed

b) Filling with registrar

  • Copy of SR or OR whichever is applicable.
  • Copy of such statement as required above.

c) 15% or more amounts of deposits maturing during current year and in the following financial year, kept in a separate bank account in a scheduled bank, the bank account will be called as ‘Deposit Repayment reserve Account.’

d) Providing deposit insurance as stated in Rule 5.

e) Certifying that the company has not committed any default in repayment of deposit and interest thereon.

Note- Every company irrespective of its form whether Public private or eligible company who is intending to invite deposits must have to comply with the provision of section 73(2) (a) to (e) otherwise company shall be in default and penalty under section 74(3) will be imposed.

Eligible company – As per section 76 of the act a public company which is

  • Having a net worth of More than 100 crores , OR
  • Having a net turnover of 500 crore , Is an Eligible company.

Only a public company can accept deposits from publics subjected to certain conditions.

  • Prior consent of company , in general meeting , by SR
  • File the SR to the registrar before making any initiation.
  • If Proposed deposit is less than net worth of the company then consent of the company can be obtained by OR.

Terms & conditions for acceptance of deposit by companies [Rule 3]

1. Period

A company cannot accept the following deposit

  • Demand deposit
  • Deposits payable within 6 months or after 36 months from the date of acceptance.

Exception- For the short term requirement of Funds Company may accept deposits less than 6 months but more than 3 months. The amount so accepted should not be more than 10% of net worth of the company.

2.  Joint Depositor

Deposits may be accepted in joint name but not more than 3 joint depositors.

3. Limits of amounts companies can accept as deposits ( sub rule 3,4 & 5)

Particulars Pvt Companies Public Companies Eligible Companies
Sources From Directors & Us From Directors & Members From Directors & Members & Public
Director No Limit, declaration required No Limit, declaration required No Limit, declaration required
Members 25% of Paid up capital & free reserves. Compliance of section 73(2) 25% of Paid up capital & free reserves. Compliance of section 73(2) 10% of Paid up capital & free reserves. Compliance of section 73(2) & 76
Public Not allowed Not allowed 25% of Paid up capital & free reserves. Compliance of section 73(2)

Govt. companies 35%

Advertisement Required Required Required
Credit rating Required Required Required

4. Ceiling on rate of Interest & Brokerage

Interest rate on deposits & Brokerage shall not exceed the maximum rate on which a NBFC can pay on their deposits.

Form of Advertisement & Circular [Rule 4 ]

Companies Other than Eligible companies

Such kind of companies intending to invite deposits from it members must issue a circular in form of an advertisement

  • Registered post, or
  • Speed post, or
  • Electronic Mode

In form No DPT-1.

Circular must also be published in

  • English language in an English News paper
  • Vernacular language in a vernacular news paper

Having its wide range of circulation in the state in which the registered office of the company is situated.

For Eligible companies

For eligible companies everything will be the same as above it is to be noted that

  • It is no where mentioned in this rule to whom the circular will be issued. So it should be assumed that the circular will be issued to the person from which the deposit is invited.
  • One additional requirement for eligible companies is that they have to upload the circular on their website.

Further conditions for both kind of companies

  • Circular must be registered with ROC at least 30 days before the issue of circular
  • Circular must be signed by majority of directors.
  • Circular will be valid not be valid after the expiry of 60 days from the end of FY in which it’s been issued OR till the date of AGM in which the accounts kept for approval, whichever is earlier.

Deposit Insurance [Rule 5 ]

Every company inviting deposits must enter into a contract for providing insurance to the depositors.

Insurance contact must specify that if company makes any default in payment of principal amount or interest thereof then the insurer will be liable to repay the amount to the depositors.

Insurance contract must not be less than Rs. 20000,

  • If the deposit amount of deposit is less than Rs. 20000 then the insurance will be for full amount, OR
  • If the amount of deposit is more than Rs. 20000 then the insurance will not be less than 20000.

Security [Rule 6 ]

After acceptance of deposit, every company within 30 days from such acceptance must provide a security either by way of Charge or by way of Mortgage. The amount of security must not be less than the amount of Unsecured Deposits.

Trustee [Rule 7,8 & 9 ]

Companies accepting deposits must appoint one or more trustees at least 7 days before issuing of circular.

Written consent of the trustee must be obtained & trust deed must also be executed in form DPT-2.

Functions of trustee

  • To protect the interest of Depositor & ascertain the appropriateness of the Security provided.
  • To redress the grievance of the depositors.

Nominee Powers & Duties [Rule 11 ] & section 72

Every depositor has a right to nominate a person to whom the amount of deposit, powers & duties of the depositor will be received on the death of the depositor. The rule 11 shall be read with section 72 of this act.

Receipt of Deposit [Rule 12]

A receipt of acceptance of the deposit from the depositor must be issued, by the officer of the company duly authorized by board, within 21 days of such receipt.

Receipt must contain the following

  • Date of Deposit
  • Name & Address of deposit
  • Amount received
  • Interest rate
  • Date on which it will become due for repayment

Maintenance of Liquid Assets [Rule 13]

For the purpose of this rule following conditions must be complied

  • Deposit 15% of the total deposit maturing during the current year and in the following financial year,
  • The amount should be kept in a scheduled bank,
  • The account will be called ‘Deposit Repayment Reserve Account
  • The amount shall be deposit up to 30th of April every year
  • The amount cannot be used for any purpose other than repayment of deposits.

Register of Depositors [ Rule 14]

Every company accepts deposit must prepare a register in which the following particulars of depositor must be recorded

  • Name & Address of the depositor,
  • Date & amount of each deposit,
  • Duration of deposit and the date when they become repayable,
  • Rate of interest
  • Due date of interest
  • Other particulars relating to deposit

Premature Payment [Rule 15]

Following conditions are there for premature deposit

  • 6 months must be expired from the date of receipt of deposit
  • Rate of interest shall be reduced by 1%.

Return of Deposit [Rule 16 ]

  • Return of deposit shall be filed in form no. DPT-3,
  • Return shall be filed up to 30th June of every year,
  • Details of deposits as on 31st march shall be filed in the form
  • Return shall be audited by the Auditor.

Penal interest [Rule 17]

If company makes default in repayment of principal amount of deposits or interest thereof then the company shall be liable to pay Penalty Interest @18% for the overdue period on the overdue amount.

Punishment for contravention Rule [Rule 21] section 74(3)

If a company violates the provision of this chapter or Rules made there under then the company shall be repay the amount of deposits and interest thereon along with the penalty of Rs. 1 Cr. This may extend to 10 Cr.

Every officer of the company who is in default shall be punishable with –

  • 7 years of imprisonment, or
  • Penalty from 25 lacs to 2 cr., or
  • ————-

(I hope this article will be useful for you. Suggestion and queries from reader are invited on the below contact details. If you find any error or omission in this please let me know so that I can provide error free articles in future. This article is prepared by taking reference of Companies act, 2013, Companies (acceptance of Deposit) Rule 2014, official web site of Ministry of Corporate affairs mca.gov.in. Special thanks to CA Sanjay Agrawal Sir who inspired me for writing this article. I can be reached via email on  Instantfinance98@yahoo.in)

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Category : Income Tax (27495)
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Tags : Companies Act (2345) Companies Act 2013 (2118)

14 responses to “Acceptance of Deposits by Companies under Companies Act, 2013”

  1. rm shivaraju says:

    which are the companies accept deposits and its interest rate pl

  2. Umang Jain says:

    You were supreb…
    but jus make a change because of amendment:
    “Deposit 15% of the total deposit maturing during the current year and in the following financial year,”
    Here the change has come from 15% to 20%.
    Else i loved reading it .It is too good maam
    Thank you.

  3. pradeep singh says:

    VERY NICE
    and the limit under sec 73(2) is increased from 25% to 35%
    as per rule 3

  4. Swati Takkar says:

    Companies usually makes Ageing for Creditors just like debtors. so on the basis of ageing its upto company and their auditors whether to include it in deposit or not. According to me its should be treated as deposite as defination if deposit says that deposit includes short term business advance hance there nthng mentioned abt long term advance.

  5. Srikanth says:

    Nicely presented such an vast topic in simple words. Can you please tell me whether Long Outstanding Creditor (more than a year) is treated as deposits or not?

    Regards,
    Srikanth

  6. Lakshay says:

    Very nice sis.

  7. Lakshay says:

    very nice

  8. Swati Takkar says:

    CS Narendra bijlani sir, you were right now pvt companies are not required to follow the procedure of section 73 (2) a to e. for futher details you may visit the following link. sorry i dint mention it in my artilce

    https://taxguru.in/company-law/exemptions-private-companies-462-ca-2013.html

  9. s. narayan says:

    It is an informative write up for the general public on the remedies available to them on default of repayment of deposits by the companies and should be well publicised. Thanks for the article.

  10. Swati says:

    Ca narender bijlani sir, i dint cheked. I will let know once i confirm. Antways thanks for your query.

    Swati takkar

  11. CS Narendra Bijlani says:

    Nice Article
    But I have query after exemption notification Pvt ltd can take 100% of Paid up capital & free reserves from its members without complying section 73 (2) (a) to (e)

  12. Avinash says:

    Excellent article, thank you

  13. Girish says:

    To,

    Swati Takkar

    Thanks a lot for sharing such a important & useful information

  14. Piyush says:

    Very nicly prepared and very useful

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