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Acceptance of Deposits by Companies: A Guide
Companies accepting deposits must adhere to strict regulations under the Companies Act, 2013, primarily Chapter V and the Companies (Acceptance of Deposits) Rules, 2014. These rules define what constitutes a deposit, specify conditions for acceptance from members or the public, outline amounts not considered deposits, and detail penalties for non-compliance, all aimed at safeguarding depositors' interests.
Key Takeaways
Deposits are regulated by specific rules to protect investors.
Many financial transactions are explicitly excluded from deposit definition.
Companies must follow strict procedures for accepting deposits.
Eligible companies can accept deposits from both members and the public.
Non-compliance with deposit rules carries significant penalties.
What is the regulatory framework for accepting deposits by companies?
The acceptance of deposits by companies is strictly governed by Chapter V of the Companies Act, 2013, specifically Sections 73 to 76A, alongside the Companies (Acceptance of Deposits) Rules, 2014. This comprehensive legal framework ensures transparency and accountability in corporate fundraising activities. Its primary purpose is to safeguard the financial interests of depositors, preventing misuse of funds and ensuring timely repayment. Companies must thoroughly understand these provisions to comply legally and maintain public trust.
- Chapter V Coverage: Sections 73-76A & Companies (Acceptance of Deposits) Rules, 2014.
- Purpose: Safeguard Depositors' Interests.
How is 'deposit' defined under company law, and what are its key features?
Under Section 2(31) of the Companies Act, a 'deposit' broadly includes any money received as a deposit, loan, or in any other form, subject to specific exclusions. This inclusive definition covers various financial arrangements where a company obtains funds with an obligation for future repayment. Key characteristics include a time-bound repayment period, the option for secured or unsecured status, and provisions for joint names and nominations. These features ensure regulatory oversight while offering flexibility in deposit structures.
- Sec 2(31): Includes money (deposit, loan, other form); Excludes prescribed categories.
- Features of Deposit: Inclusive, Time-bound Repayment, Secured/Unsecured, Joint Names (Max 3), Nomination Allowed, Repaid with Interest, Premature Repayment Possible, Private Co.: From Members Only, Public Co.: From Members & Public (Conditions Apply).
Which financial receipts are specifically excluded from the definition of a deposit?
The Companies Act explicitly excludes numerous financial receipts from the 'deposit' definition, simplifying compliance for specific transactions. These exclusions encompass funds from governments, foreign entities, banking institutions, and inter-company deposits. Also excluded are amounts against commercial paper, security subscriptions with conditions, and funds from directors or their relatives in private companies, provided declarations are made. Other exclusions include certain bonds, debentures, employee security deposits, and advances received in the ordinary course of business, all crucial for accurate regulatory adherence.
- From Govts/Authorities.
- From Foreign Entities.
- From Banking/Financial Institutions.
- Against Commercial Paper.
- Inter Company Deposit (ICD).
- Against Securities Subscription (Conditions: 60 days allotment, 15 days refund).
- From Director/Relative (Private Co.) (Conditions: Declaration, not from borrowed funds).
- Issue of Bonds/Debentures (Secured by Charge, convertible within 10 years).
- Non-Convertible Debentures (NCDs) (No Charge, listed on recognized stock exchange).
- From Employee (Security Deposit) (<= Annual Salary, Non-Interest Bearing).
- Non-Interest Bearing Trust Amount.
- In Course of Business (Advances) (For Goods/Services (365 days), Immovable Property, Security Deposit, Long-term Projects, Warranty/Maintenance, Publication Subscription).
- From Promoters (Unsecured Loan) (Per FI/Bank stipulation).
- From Nidhi Co.
- From Chit Fund Subscription.
- From Collective Investment Scheme.
- From Start-up (Convertible Note) (>= ₹25 Lakh, Single Tranche, <= 10 yrs repay).
- From AIFs/DVCFs/InvITs/REITs.
- Note: Private Co. Deposits pre-Apr 2014 (Not deposits under conditions).
Which companies are prohibited from accepting public deposits, and which are exempt?
Section 73(1) of the Companies Act, 2013, prohibits companies from accepting public deposits unless done in a prescribed manner, emphasizing regulated fundraising. However, certain entities are specifically exempted from these deposit regulations due to their existing regulatory frameworks. These include banking companies, Non-Banking Financial Companies (NBFCs), and Housing Finance Companies (HFCs) registered with the National Housing Bank. The Central Government may also notify other companies for exemption, streamlining compliance for entities already under stringent oversight.
- Prohibition (Sec 73(1)): Public Deposits only in prescribed manner.
- Exempted Companies: Banking Company, NBFC, HFC (NHB Registered), Other Central Govt. Notified Co.
What are the penalties for companies and officers who contravene deposit regulations?
Contravention of deposit regulations under Section 76A of the Companies Act, 2013, leads to severe penalties for both the company and its officers. A company can face a substantial fine, either a minimum of one crore rupees or twice the amount of the deposit, up to a maximum of ten crore rupees. Additionally, the company must repay the deposit along with interest. Officers in default may face imprisonment for up to seven years and a fine ranging from twenty-five lakh to two crore rupees. Fraudulent activities can also lead to action under Section 447.
- For Company (Sec 76A): Fine (Min 1 Cr or 2x Deposit, Max 10 Cr); Plus: Repayment + Interest.
- For Officer-in-Default (Sec 76A): Imprisonment (Max 7 years); Fine (Min 25 Lakh, Max 2 Cr); Fraud: Action under Sec 447.
Who qualifies as a 'depositor' under the Companies Act?
The term 'depositor' is crucial for understanding whose interests the regulations protect. Under Section 73(2), a member of a company who places a deposit is considered a depositor. For public companies, Section 76 extends this definition to include any person from the public who places a deposit. This distinction is important because the rules for accepting deposits vary depending on whether the funds are sourced from members or the general public, ensuring appropriate safeguards for each category.
- Member (Sec 73(2)).
- Person with Public Co. (Sec 76).
What criteria define an 'eligible company' for accepting public deposits?
An 'eligible company' is a public company that meets specific financial thresholds and procedural requirements to accept deposits from the public. As per Section 76(1), such a company must have a net worth of at least 100 crore rupees or a turnover of at least 500 crore rupees. Before accepting deposits, it must pass a special resolution with prior consent, which then needs to be filed with the Registrar of Companies (RoC). An exception allows for an ordinary resolution if the acceptance falls within limits specified by Section 180(1)(c).
- Public Company (Sec 76(1)).
- Net Worth >= 100 Cr OR Turnover >= 500 Cr.
- Special Resolution (Prior Consent).
- Filed with RoC.
- Exception: Ordinary Resolution (for Sec 180(1)(c) limits).
What are the conditions for companies to accept deposits from their members?
Companies accepting deposits from their members must adhere to a detailed set of conditions to ensure compliance and depositor protection. This process begins with passing a resolution in a general meeting and issuing a circular in Form DPT-1 to members, detailing financial information and credit rating. This circular must be published in newspapers and filed with the RoC. Companies must also maintain a Deposit Repayment Reserve Account (DRRA) with 20% of maturing deposits, provide security if applicable, and ensure timely repayment with interest.
- Passing of Resolution (General Meeting).
- Issuance of Circular (Form DPT-1).
- Filing of Circular (RoC, 30 days before issue).
- Deposit Repayment Reserve Account (DRRA).
- Certification as to No Default.
- Provision of Security (If Secured, Create Charge).
- Repayment of Deposit (With Interest).
- Application to NCLT (If Failure to Repay).
- Tenure (Min 6 months, Max 36 months).
- Maximum Amount (<= 35% of Capital+Reserves).
- Appointment of Trustee (Same as Public).
- Ceiling on Interest/Brokerage (RBI Prescribed).
- Application Form Required.
- Joint Names (Max 3, Various Clauses).
- Nomination Allowed.
- Deposit Receipt (Within 21 days).
- Register of Deposits (Maintain).
- Premature Repayment (Rules Apply).
- Filing Return of Deposits (DPT-3 by June 30th).
- No Right to Alter Terms.
- Disclosures in Financial Statements.
- Penal Rate of Interest (18% p.a. for overdue).
- Punishment for Contravention (Fine 5k, then 500/day).
- Exemption to certain Private Companies.
What specific requirements must eligible companies meet to accept deposits from the public?
Eligible companies, meeting specific net worth or turnover criteria, face additional stringent requirements when accepting deposits from the public. This includes passing a special resolution, obtaining an annual credit rating, and creating a charge on assets to secure the deposits. They must appoint a trustee for depositors and issue a circular in an advertisement form (DPT-1) published in newspapers and on their website. Strict limits apply to the maximum amount accepted from members and the public, along with rules for tenure, interest rates, and maintaining a Deposit Repayment Reserve Account.
- Net Worth/Turnover Criterion.
- Passing of Special Resolution.
- Obtaining Credit Rating (Annually, DPT-3 to RoC).
- Charge Creation on Assets.
- Tenure (Min 6 months, Max 36 months).
- Appointment of Trustee for Depositors.
- Meeting of Depositors (Requisition OR Default).
- Maximum Amount (From Members: Max 10%; From Public: Max 25%).
- Max Amount (Eligible Govt. Co.): Max 35%.
- Issuance of Circular in Advertisement Form.
- Filing with Registrar (30 days before issue).
- Validity of Advertisement (6 months from FY closure OR AGM Date).
- Fresh Advertisement (Annually).
- Issue & Effective Dates.
- Maintenance & Using DRRA (20% by April 30th).
- Ceiling on Interest/Brokerage (RBI Prescribed).
- Application Form Required.
- Joint Names (Max 3, Various Clauses).
- Nomination Allowed.
- Deposit Receipt (Within 21 days).
- Register of Deposits (Maintain).
- Premature Repayment (Rules Apply).
- Premature Closure for Higher Interest (If Renewed).
- Filing Return of Deposits (DPT-3 by June 30th).
- Disclosures in Financial Statements.
- Penal Rate of Interest (18% p.a. for overdue).
- No Right to Alter Terms.
What were the provisions for repaying deposits accepted before the Companies Act, 2013?
For deposits accepted prior to the enactment of the Companies Act, 2013, specific transitional provisions were in place to manage their repayment. Companies were required to file a statement with the Registrar of Companies within three months of the Act's commencement. The repayment of these deposits had to occur within three years from the commencement of the Act or upon their earlier maturity. In cases of difficulty, companies could seek an extension of time from the National Company Law Tribunal (NCLT) to ensure compliance and avoid penalties.
- Filing Statement & Repayment.
- Extension of Time by NCLT.
- Punishment for Non-Repayment.
What role does the Central Government play in regulating company deposits?
The Central Government holds significant authority in shaping the regulatory landscape for company deposits. Its power primarily involves deciding the applicability of various rules and regulations, often in consultation with the Reserve Bank of India (RBI). This consultative approach ensures that the rules are practical, effective, and aligned with broader financial policies. The government's ability to notify specific companies for exemption or to modify rules provides flexibility to adapt to evolving economic conditions and industry needs, maintaining a balanced regulatory environment.
- Decides applicability of rules (in consultation with RBI).
Frequently Asked Questions
What is the main objective of regulating company deposits?
The main objective is to safeguard the financial interests of depositors by ensuring transparency, accountability, and timely repayment of funds accepted by companies.
Are all funds received by a company considered deposits?
No, the Companies Act, 2013, specifically excludes several categories of receipts, such as funds from government, banks, or certain advances, from the definition of a deposit.
What is an 'eligible company' in the context of deposits?
An eligible company is a public company with a net worth of at least 100 Cr or turnover of 500 Cr, permitted to accept deposits from the public under strict conditions.
What is the Deposit Repayment Reserve Account (DRRA)?
DRRA is an account where companies must deposit 20% of maturing deposits by April 30th each year, used exclusively for repaying depositors.
What happens if a company fails to repay deposits on time?
Failure to repay can lead to severe penalties for the company and its officers, including substantial fines, imprisonment, and an obligation to repay with 18% penal interest.
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