Regarding companies, deposits received from the members and the public at large are one of the primary sources through which they can raise funds. Understanding this, the Companies Act has introduced relevant sections and associated provisions that control companies inviting such deposits, ensuring that the general and wider interests of all persons offering these deposits to such companies are safeguarded. Sections 73 to 76A of the Companies Act, read with the Companies (Acceptance of Deposits) Rules, govern the acceptance of deposits and renewal or repayment thereof.
Deposit
As per Section 2(31), a deposit is the receipt of money by way of deposit, loan, or in any other form by a corporation. But this does not include such categories of receipt which the Companies Act prescribes in consultation with the RBI (Reserve Bank of India), and are specified or detailed in (Article: Amounts not Considered as Deposits).
Applicability
All companies shall accept deposits from both members and the general public, complying with sections 73 to 76A as per the Companies Act. Section 73(1) states that, on or after commencement of the Companies Act, no company shall invite, accept, or renew deposits except in the manner which has been provided under this chapter. As per the same, the following companies have been kept out of the same, namely:
a) a banking company and a non-banking financial company (NBFC) or a Housing Finance Company as per the RBI,
b) other companies as specified by the Central Government in consultation with the RBI.
Section 73: Prohibition of Acceptance of Deposits
In order to accept deposits, certain conditions should be complied with by a company, and the same are stated below:
- The company’s members should pass a resolution.
- The members of the company should be issued with a circular stating the following details, namely:
- a) financial statement,
- b) credit rate obtained,
- c) total number of depositors,
- d) amount due towards the depositors with regard to any prior deposits,
- e) other specifics as may be recommended.
iii. A copy of the circular should be filed with the ROC (Registrar of Companies) at least 30 days prior to the issue of such circular to the members.
- Twenty percent of the total amount of deposits that will mature in the following financial year should be deposited with a scheduled bank in a separate account, namely, the ‘Deposit Repayment Reserve Account’, on or before April 30 every year. April 30 needs to certify that it has not commitApril 30n the repayment of the deposits accepted either before or after the commencement of the Companies Act or the interest payment of the same.
And in case of any defaults that have occurred, the company has made the same good, and a total period of 5 years has elapsed since the date of making good such default.
- The company shall provide security (if any) for the deposits accepted, and it shall take such steps for the creation of a charge on the property or assets of the company. And if no security has been provided, then such deposits shall be shown as ‘Unsecured Deposits’ in all documents pertaining to the same.
vii. Repayment of all deposits accepted by the company shall be done along with interest in accordance with the terms and conditions of the agreement.
viii. If a company fails to repay the deposit or a part thereof or any interest due thereon, the depositor concerned may apply to the Tribunal regarding the same. And the Tribunal shall order the company to pay the sum owing or any loss or damage incurred by such depositor due to the non-repayment by the company, and also serve such other orders which the Tribunal shall deem fit.
- The company shall not utilize the amount deposited in the Deposit Repayment Reserve Account for such deposits.
- A company shall not receive or accept deposits, whether secured or unsecured, repayable on demand or within less than 6 months. And the maximum period for which the deposit can be accepted cannot exceed 36 months (3 years).
For example, a company accepted an INR 2,50,000 deposit from its member on April 1, 2020. Therefore, the latest date of repayment allowed for this will be September 30, 2020 (6 months). The latest date would be March 3 (or April 13, as the company can decide according to its policies or norms), which is the same as September 30.
The Companies Act provides certain exemptions for the first six months, up to March 31, if a company wishes to raise funds to meet any short-term requirements. Then the company can accept or renew deposits for repayment before 6 months, subject to the following conditions:
– Such deposits shall not exceed 10% of the aggregate of the paid-up share capital, free reserves, and securities premium account of the company; and
– Such deposits are repayable only on or after 3 months from the date of receipt or renewal of such deposits.
Section 74: Repayment of Deposits Accepted before the Commencement of this Act
Section 74 lays out the provisions regarding the reimbursement of those deposits which the company received before the beginning of the Companies Act, 2013; wherein there is any amount of principal or interest repayment that stands unpaid to date, then the company shall:
- File the Form DPT-4 with ROC within 3 months of the commencement of the Companies Act,2013, or from such date on which the repayment became due for furnishing the following details:
i.a) All the deposits that the company accepted,
i.b) the amount that is remaining unpaid on such deposits, including the interest amount,
i.c) necessary arrangements that the company has made in this regard.
- The company should repay this amount, i.e., the deposit plus interest, within 3 years from the commencement of the Companies Act, 2013, or the expiry of the term of these deposits, whichever is earlier.
iii. The company, if it finds it difficult to remit the repayment of such deposits along with the interest amount to the depositors, shall file a request for extension with the Tribunal. The Tribunal shall allow such extension on the basis of reviewing the following points:
iii.a) the financial position of the company,
iii.b) the amount of deposit and interest to be paid,
iii.c) such other matters which may be related to the same.
- If the company fails to make repayment of the said deposit money or interest which is due on the same, within the stipulated period or such extended time by the Tribunal, then the company shall be punishable with a fine in addition to such repayment, and this shall stay as below:
– The company shall be liable to pay a fine of INR 1 crore to INR 10 crore,
– while every other officer in default shall be punishable with;
- Incarceration that may extend up to 7 years, or
- a fine of INR 25,00,000 to INR 2 Crore or
Section 75: Damages for Fraud
Where a company fails to repay the depositor/and the interest due thereon within the stipulated time or such extended period as provided by the Tribunal, and itwas also provided that such deposits were taken for fraudulent purposes then every officer who is found guilty shall be personally held responsible and punished under section 447 of Companies Act.
The punishment which shall be provided as per section 447 would be imprisonment for a term which shall not be less than 6 months but which may extend to 10 years, and shall also be levied with a penalty or fine that shall not be lower than the amount that is involved in the fraud. Still, it shall be noted that this may extend to 3 times the amount of fraud. It has also been provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than 3 years.
Section 76: Acceptance of Deposits from the Public
Deposits from the public may be accepted only by companies belonging to certain classes as prescribed under section 76 of the Companies Act. And this shall include any Public Company having:
– a net worth which is not lower than INR 100 Crore,
– a turnover which is not lower than INR 500 Crore,
– has already taken the consent using the passing of a Special Resolution in the General Meeting,
– Already furnished the Special Resolution, which the Registrar passed.
A company that is eligible to accept deposits as per section 76 of the Companies Act shall comply with the following additional requirements prior to inviting the deposits:
– Obtain a credit rating from such a credit rating agency,
- initially, before such invitations for deposits are made, osoas to keep the public informed regarding the credit rating of the company, and
- Then every year, which is the tenure of such deposits that are made.
– Within 30 days of the receipt of deposits, a charge on the assets of the company should be created, and such charge should be at least equal to the amount of deposits accepted.
Section 76A: Punishment for Contravention
Suppose a company fails to repay the deposits or the interest thereon or fails to adhere to the provisions of sections 73 to 76 of the Companies Act. In that case, the company shall be held liable for punishment as follows:
– The company shall be levied with a fine or penalty:
- INR 1 Crore, or
- Twice the amount of deposits accepted,
whichever is lower,
- Which may spread to INR 10 Crore.
- All the officers of the company who are found to be guilty or have committed default shall be liable to:
- Incarceration that may be spread to 7 years, or
- Fine of INR 25,00,000 to INR 2 Crore, or
- Or both.
