Deposits are a means through which companies generally acquire funding. The provisions concerning deposits are covered under Sections 73 to 76 of the Companies Act, 2013, which are generally read with the prescribed Rules. As per the Companies Act, 2013, a deposit is any money that is received, either by means of a deposit or a loan or any other form as may be prescribed, but does not include certain classes of transactions. They are:-
- Received from the Central Government or a State Government, or any such source where the repayment will be guaranteed by the State or the Centre.
- Received from foreign banks or international banks, foreign governments, multilateral financial institutions subject to the provisions of FEMA, 1999.
- Received by way of financial assistance or loan from Public Financial Institutions notified by the Central Government or Scheduled Banks or Insurance Companies.
- Received as a loan or facility from any banking company or the State Bank of India or any of its subsidiaries.
- Received by a company from any other company.
- Received against the issue of commercial paper or any other instruments issued in accordance with the RBI guidelines.
- Received against an offer made towards the subscription of securities, by way of share application money or advance towards allotment. The money shall be considered as a deposit provided:-
a) The company fails to allot such securities within 60 days.
b) And after the expiry of the aforesaid 60 days, the money that is received has still not been refunded in the next 15 days.
- Received from an employee of the company not exceeding his annual salary in the nature of non-interest bearing security deposit.
- Received amount that is non-interest bearing in nature or held in trust.
- Received from a director who provides a declaration stating that the amount is not given out of borrowings or a loan from any person.
- Raised by way of issue of debentures or bonds secured by a first charge or any other way.
- Brought in by the promoters as a loan, unsecured in nature, in pursuance with the stipulation of bank or lending financial institution.
- Accepted by Nidhi Company as per the provisions of Sec 406 of the Act.
- Received in the course/for the purpose of business as an advance:-
a) Received in connection with consideration for property under an agreement.
b) Received for the supply of capital goods under long term projects.
c) For the supply of goods/provision of services as long as the advance is appropriated against the supply of goods/provision of services within 365 days of accepting the same.
- Received as a security deposit for the performance of a contract.
Companies may accept deposits from both, members and the general public as per the provisions of the Companies Act, 2013. Section 73-76 of the Companies Act, 2013 contains provisions regarding the acceptance of deposits that apply to all companies barring a few:-
- Any banking company.
- Non Banking Financial Companies as per the RBI Act 1934.
- Any other company notified by the Central Government in consultation with the RBI.
Prohibition of Acceptance of Deposits (Sec. 73)
There are a few conditions that have to be fulfilled in order for a company to accept deposits. They are:-
- A resolution has to be passed in the General Meeting.
- A circular has to be issued to the members with the following details:-
a) Financial statements
b) Credit rating obtained
c) Total number of depositors
d) Amount due to the depositors with regard to prior deposits
e) Other particulars as may be prescribed
- File a copy of the circular and the statements with the Registrar at least 30 days prior to the issue of the circular.
- 20% of the total amount of deposits maturing in the following financial year to be deposited with a Scheduled bank in a separate account, “Deposit Repayment Reserve Account” before the 30th of April, of every year.
- Certification of the fact that the company has not defaulted on the repayment of the deposits or any payment of interest on such deposits, whether those deposits were accepted before or after the commencement of the Act.
Where there was a default on the part of the company, and the company has made good of the same, and a period of five years has passed since the default has been made good.
- A security has to be provided for the deposits accepted, and where there is no security provided, such deposits will be shown as Unsecured Deposits in all documents pertaining to the deposits.
Repayment of Deposits (Sec. 74)
Section 74 lays out the provisions for the repayment of those deposits which have been accepted by the company before the commencement of the Act; wherein there is any amount of principal or the interest that stands unpaid.
The company must:-
- File Form DPT – 4 with the Registrar within 3 months of the commencement of the Act or from the date on which the payments become due. The form will include details of:-
a) All the deposits accepted by the Company.
b) Amount remaining unpaid on those deposits including the interest element
c) Arrangements made for these payments
- Repay the deposits within 3 years of the commencement of the Act or the expiry of the term of those deposits, based on whichever is the earliest.
- Where the Company requires an extension of time to fulfill the payments, it may make an application to the Tribunal for such extension. The Tribunal shall allow the company the extension requested for after reviewing the following:-
a) The financial position of the company.
b) The amount of deposits to be repaid, including the interest on the same
c) Such other related matters.
- Where the company fails to repay the deposit money within the stipulated time or such extended period granted by the Tribunal, the company will be punishable with a fine in addition to the repayment of the deposits as specified below –
Rs. 1 crore – Rs. 10 crore
Every officer found in default
a) Imprisonment that may extend to 7 year
b) Or Rs. 25 lakh – Rs. 2 crore
c) Or both
Damages for Fraud (Sec. 75)
Where the company fails to repay the deposit money within the stipulated time or such extended period granted by the Tribunal, and it is proved that the deposits were obtained for fraudulent purposes, every officer found guilty will be held personally responsible and be punishable under Section 447 of the Companies Act, 2013.
Any suits or proceedings shall be filed by anyone who has suffered damage due to the failure of the company to repay the deposits.
Acceptance of Deposits from Public by Certain Companies (Sec 76)
Deposits from the public may be accepted only by a certain class of companies, as per the provisions of Section 76. Any public company that:-
- Has a networth not less than Rs. 100 crore.
- Has a turnover not less than Rs. 500 crore.
- Has already obtained the consent via Special Resolution in the General Meeting.
- Has already filed the Special Resolution with the Registrar.
prior to inviting deposits from the public.
- Obtain a rating from the credit rating agency:
a) Initially, at the time of inviting deposits, so that the public is informed.
b) Every year during the tenure of the deposits.
- Once the deposits are received, within 30 days, a charge is to be created on the company’s assets, the charge amount to be at least the amount of deposits accepted.
Punishment for Contravention (Sec 76A)
Where a company fails to adhere to the provisions of Section 73 or Section 76 or fails to repay the deposits as per Sec 73 or 76, the company shall be found to be in contravention of the provisions of the Companies Act, 2013, and shall be liable for punishment as follows:-
a) Rs. 1 crore or
b) Twice the amount of deposits accepted
(whichever is lower)
c) May extend to Rs. 10 crore
Every officer found in default
a) Imprisonment that may extend to 7 years
b) Rs. 25 lakh – Rs. 2 crore
c) Or both
Where the officer found in default is proven guilty of knowingly contravening such provisions or willfully intending to deceive the company or the stakeholders, he shall attract the punishment under Section 447 of the Companies Act, 2013.
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