Acceptance of Deposits by the Companies
Regarding companies, deposits received from the members and the public at large are one of the major sources through which they can raise funds. Understanding this, the Companies Act has brought in relevant sections and allied provisions which would control the companies inviting such deposits such that the general and wider interest would be safeguarded with respect to all persons who offer these deposits to such companies. Section 73 to 76A of the Companies Act, read with the Companies (Acceptance of Deposits) Rules is governing the acceptance of deposits and renewal or repayment thereof.
As per section 2(31) deposit, is nothing but receipt of money by way of deposit or loan or in such other form by a company. But this does not include such categories of receipt which are prescribed by the Companies Act in consultation with the RBI (Reserve Bank of India), and are specified or detailed in (Article: Amounts not Considered as Deposits).
All companies shall accept deposits from both members and the general public complying with section 73 to section 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 Housing Finance Company as per 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, there are certain conditions that should be complied with by a company, and the same are stated below:
- A resolution should be passed by the company in general meeting for acceptance of deposits from its members.
- 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.
- 20% of the total amount of deposits that will be maturing in the following financial year should be deposited with a scheduled bank in a separate account namely, ‘Deposit Repayment Reserve Account’ on or before the 30th of April every year.
- The company also needs to certify that it has not committed any default in 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 which have occurred, the company have made the same good and a total period of 5 years had 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 creation of 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 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 due 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 amount deposited in the Deposit Repayment Reserve Account shall not be utilized by the company for any purpose other than the repayment of such deposits.
- A company shall not receive or accept deposits whether secured or unsecured, repayable on demand or within a period 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 the deposit of INR 2,50,000 from its member on 1st April 2020. So, the earliest date of repayment allowed for this will be 30th of September 2020 (6 months), while the latest would-be 31st of March 2023 (3 years), which can be decided by the company as per their policies or norms with regard to the same.
Companies Act has provided certain exceptions to this time period of 6 months if the company would want to raise funds for meeting 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 is laying out the provisions regarding the reimbursement of those deposits which were received by the company before the beginning of the Companies Act, 2013; wherein there is any amount of principal or interest repayment that stands unpaid till date, then the company shall:
- File the Form DPT-4 with the ROC within 3 months of the commencement of the Companies Act,2013 or from such date on which the repayment became due, furnishing the following details:
i.a) All the deposits which were accepted by the company,
i.b) amount which is remaining unpaid on such deposits including the interest amount,
i.c) necessary arrangement which has been made by the company with this regard.
- The company should repay this amount i.e., the deposit plus interest within a period of 3 years from the commencement of 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 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 time 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 of time 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 penalty or fine that shall not be lower than the amount that is involved in the fraud, but 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 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 Special Resolution in the General Meeting,
– already furnished the Special Resolution which was passed with the Registrar.
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 credit rating agency,
- initially before such invitation for deposits are made so as 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 charge on assets of the company should be created and such charge created should be at least equal to the amount of deposits accepted.
Section 76A: Punishment for Contravention
If 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, then the company shall be held liable for punishment as follows:
– The company shall be levied with 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 is found to be in guilty or 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.