ACCEPTANCE OF DEPOSIT BY COMPANIES UNDER COMPANIES ACT, 2013
Sections 73 to 76 of the Companies Act, 2013 regulate the invitation and acceptance of deposits from public by all companies other than the Non-Banking Financial Companies and such other company as the Central Government may, after consultation with the Reserve Bank of India, specify in this behalf. All these section has become applicable from 01.04.2014.
Section 73: Prohibition on acceptance of deposits from public.
Section 73(2): Conditions for acceptance of deposits.
Section 74: Repayment of deposits, etc., accepted before commencement of this Act.
Section 75: Damages for fraud.
Section 76: Acceptance of deposits from public by certain companies.
Section 73: “Prohibition on acceptance of deposits from public.”
Section 73 provides for companies prohibited from inviting, accepting or renewing deposits from public except following:
(i) Banking company;
(ii) Non-Banking Financial Companies (NBFCs) as defined in the Reserve Bank of India Act1934 (2 of 1934) registered with the Reserve Bank of India;
(iii) a housing finance company registered with the National Housing Bank established under the National Housing Bank Act, 1987 (53 of 1987); and
(iv) a company specified by the Central Government under the proviso to sub-section (1) of section 73 of the Act.
Section 73(2): “Conditions for acceptance of deposits.”
As per section 73(2), a company other than those specified above, may invite, accept or renew deposits only from its MEMBER subject to rules and conditions including the following:
(i) Passing of resolution in a general meeting.
(ii) issue of circular to members showing the financial position of the company, the credit ratings obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in the Form DPT-1 as prescribed in the rule 3 of Companies (Acceptance of Deposit) Rules, 2014;
(iii) Filing a copy of the circular with the Registrar of Companies within 30 days before the date of issue of the circular;
(iv) Credit rating;
(v) providing such deposit insurance in such manner and to such extent as prescribed under the Rule 6 of the Companies (Acceptance of Deposit) Rules, 2014 ;
(vi) depositing in scheduled bank 15% of amount of its deposits maturing during the current and next financial year;
(vii) certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits;
(viii) Providing security, if any for the due repayment of the amount of deposit or the interest thereon including the creation of such charge on the property or assets of the company.
In case where a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as ‘‘unsecured deposits’’ and shall be so quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits.
What is ‘Deposit’ as per Companies Act, 2013
In terms of section 2(31) of the Companies Act, 2013, “deposit” includes any receipt of money by way of DEPOSIT OR LOAN or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.
Therefore, all types of deposit of money or the amount borrowed by a company do not fall within the definition of deposit.
The Central Government has notified the Companies (Acceptance of Deposit) Rules, 2014 under the Companies Act, 2013.
Amounts received by a company which are exempted and not included in the category of deposits
Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 provides that deposit includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include-
- Amount received from the government, guaranteed by the government, foreigner, foreign body corporate, etc.
- Any amount received as a loan or credit facility from the Bank or Financial Institutions.
- Any amount received against issue of commercial paper or any other instrument.
- Any amount of inter corporate loans. (Any amount received by a company from any other company as loan are exempted from the definition of deposits)
- Share/security application money to the extent of allotment within 2 months are exempted
- Any amount received from the directors, subject to that the amount should not be borrowed by them.
- Amount received by issuance of secured bonds and debentures
- Amount received from the employee as a security deposit
- Non Interest bearing amount received in trust.
- Amount bought by the promoters by way of unsecured loans.
- Amount received by a Nidhi Company.
- Amount received in the ordinary course of business.
Rule 2(1)(c)(xii) of the Companies (Acceptance of Deposits) Rules, 2014 provides that any amount received in the course of or for the purposes of the business of the company:
(a) as an advance for the supply of goods or provision of services accounted for in any manner whatsoever provided that such advance is appropriated against supply of goods or provision of services within a period of 365 days from the date of acceptance of such advance:
Provided that in case of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of three hundred and sixty five days shall not apply:
(b) as advance accounted for in any manner whatsoever, received in connection with consideration for property under an agreement or arrangement, provided that such advance is adjusted against the property in accordance with the terms of agreement or arrangement.
(c) as security deposit for the performance of the contract for supply of goods or provision of services.
(d) as advance received under long term projects for supply of capital goods except those covered under item (b) above:
Provided that if the amount received under item (a), (b) and (d) above becomes refundable (with or without interest) due to the reason that the company accepting the money does not have necessary permission or approval, wherever required, to deal in the goods or properties or services for which the money is taken, the amount received shall be deemed to be a Deposit under these rules
Explanation.—For the purposes of this sub-clause the amount referred to in the first proviso shall be deemed to be deposits on the expiry of fifteen days from the date they become due for refund
Section 74: “Repayment of deposits, etc., accepted before commencement of this Companies Act, 2013”
Section 74(1) provides that where in respect of any deposit accepted by a company before the commencement of the Companies Act, 2013, i.e. 1st April, 2014 the amount of such deposit or part thereof or any interest due thereon remains unpaid on 1st April, 2014 or becomes due at any time thereafter, the company shall—
(a) file, a statement in the Form DPT-4 within a period of 3 months from 1st April, 2014 or from the date on which such payments, are due, with the Registrar a statement of all the deposits accepted by the company and sums remaining unpaid on such amount with the interest payable thereon along with the arrangements made for such repayment, irrespective of anything contained in any other law for the time being in force or under the terms and conditions subject to which the deposit was accepted or any scheme framed under any law; and
(b) repay within 1 year from 1st April, 2014 or from the date on which such payments are due, whichever is earlier.
It has been provided in section 74(2) of the Companies Act, 2013 that where a company has failed to repay any deposit and interest thereon, the Tribunal on application made to it by the company in DPT-4, after considering the financial condition of the company, the amount of deposit or part thereof and the interest payable thereon and such other matters, allow further time as considered reasonable to the company to repay the deposit.
Penal Provision for failure to repay deposit
If a Company fail to repay the deposit as per time limit specified in section 74 and extra time allowed by tribunal, the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than ` 1 crore but which may extend to ` 10 crore and every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than ` 25 lakh but which may extend to ` 2 crore or with both.
Punishment for Contravention
If any company under section 73(2) or any eligible company inviting deposits or any other person contravenes any provision of these Rules for which no punishment is provided in the Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ` 5,000 and where the contravention is a continuing one, with a further fine which may extend to ` 500 for every day after the first day during which the contravention continues.(Rule 21)
Section 75: “Damages for fraud.”
Where a company fails to repay the deposit or part thereof or any interest thereon and it is proved that the deposits had been accepted with intent to defraud the depositors or for any fraudulent purpose, every officer of the company who was responsible for the acceptance of such deposit shall, without prejudice to the penal provision provided in section 74(3) and punishment for fraud provided in section 447 of the Companies Act, 2013 shall be personally responsible, without any limitation of liability, for all or any ofthe losses or damages that may have been incurred by the depositors.
Any suit, proceedings or other action may be taken by any person, group of persons or any association of persons who had incurred any loss as a result of the failure of the company to repay the deposits or part thereof or any interest thereon.