The Indian corporate law regulates the acceptance of deposits by companies. Due to the nature of deposits, which involve the use of public money and the confidence of investors, the Companies Act, 2013, and the rules governing deposits set very strict requirements for how companies may invite and accept deposits and/or administer them. These laws are aimed at protecting depositors, enhancing transparency, and preventing the misuse of funds. It is significant to the company directors, compliance officers, investors and owners of the business, as they need to understand the rules governing acceptance of deposits.
Meaning of Deposits under the Companies Act
Deposits are cash received by a company, either in the form of a loan, an advance, or another financial facility. The Companies (Acceptance of Deposits) Rules, 2014, however, provide some exceptions, including bank loans, money received by way of application to share, security deposits, advances against delivery of goods, inter-corporate loans and the amounts received by government bodies.
The wide scope of the definition of deposits is to ensure that companies do not collect funds from people without proper procedures. The invitation or acceptance of deposits by the members or the general populace is only open to companies who meet very stringent conditions.
Who Can Accept Deposits?
According to the Companies Act, a company can only accept deposits in some categories. A private company can take deposits only from its members, and of them also with regard to adherence to prescribed conditions. It does not have the ability to solicit deposits.
A company that has a net worth of at least Rs.100 crore or a turnover of at least Rs.500 crore is considered an Eligible Company. These companies are allowed to take deposits from the people, provided they meet the required statutory requirements. Only the members can make deposits in non-eligible public companies.
It is necessary to understand such categories to know what type of deposit-raising business a company may engage in or not.
Conditions for Acceptance of Deposits
The act places a number of compulsory requirements on firms that desire to increase deposits. Such requirements secure depositors and also make funds safe.
- A company should also publish an outline or advertisement with a financial statement, credit rating, deposit scheme, and conditions of repayment and risk elements. This circular has to be circulated first before it is registered with the Registrar of Companies.
- The company will have to obtain a credit rating from a recognised credit rating agency that indicates the company’s financial stability and its ability to pay deposits. This rating needs to be revised on an annual basis.
- The depositing companies should have a deposit repayment reserve account in a scheduled bank. At least 20% of the deposits to be paid off in the coming financial year should be deposited in this reserve so they can be paid off.
- A deposit must be secured by the creation of a charge over company assets, except when issued as unsecured deposits with specific disclosures. The interest rates and tenures of deposits used to repay a loan should not exceed the stipulated limits.
These terms bring in a sense of responsibility and minimize the chances of default by firms.
Types of Deposits a Company May Accept
The companies are free to accept deposits that have a minimum tenure of six months and a maximum of thirty-six months. Extrajudicially, businesses can take deposits on the basis of a shorter term to cover working capital requirements, though within certain limits.
Deposits can be made either by members (with regard to the case of a private company and non-eligible public company) or to the public (only an eligible company).
Their compliance requirements are different as the company should keep separate records of member deposits and public deposits.
Categories that are exempted and are not regarded as deposits
The Companies Act does not consider some financial receipts as deposits. These are loans made by directors, funds raised by banks or other financial institutions, money raised by way of share application, inter-corporate loans, advances received in the ordinary course of business, security deposits and government loans.
The law can exclude these categories to make sure that the deposit compliance requirement is not imposed on the authentic business dealings.
Repayment and renewal of deposits
The companies must repay deposits only according to the agreed terms. Any disobedience under the Companies Act carries heavy penalties. If a company wants to renew a deposit, it must go through the compliance protocols it must follow when taking a new deposit. Renewals lacking proper documentation may be considered violations.
Late payment of deposits or interest is serious, with the directors being disqualified and prosecuted. Thus, businesses should ensure they maintain adequate liquidity and financial planning to honour deposit commitments.
Compliance Requirements for Companies Accepting Deposits
- All companies that accept deposits should have a depositor register, which should hold the information of the depositor, amount deposited, maturity date, interest rate, and payment history.
- The company has to submit a return of deposits (Form DPT-3) annually to the Registrar of Companies and submit all the details regarding deposits and exempted borrowings.
- Firms are also obliged to make Form DPT-1 when issuing circulars, reserve accounts, renewing credit rating, and also making security where necessary. Failure to submit such forms can result in fines under the Companies Act.
- The boards, regular audits, and open disclosures should be undertaken to stay in line with the deposit regulations.
Penalties for Non-Compliance
Usage of the Companies Act to accept deposits is harshly punished. The company may have to pay fines ranging into the crores, and defaulting officers can be sent to jail. Moreover, they could also be called upon to refund the deposits, including the interest.
Such stringent punishments help to make sure that corporations do not waste the money of people or deceive those who have deposits.
Conclusion
Laws are very strict to ensure that companies accept deposits and safeguard investors and financial stability. Invitations to deposit by the public to other companies can only be made by eligible companies, and the rest should not exceed member deposits. All companies must comply with the Companies Act to maintain reserve funds, submit the required documents, and pay on time.
When compliance is done well, it not only helps build trust among stakeholders but also enhances the company’s credibility in the market. For companies intending to fund activities through deposits, a clear understanding of the legal framework and requirements is key to smooth operations and long-term expansion.
