Deposits Under Companies Act, 2013 & Deposits Rules

COMPANY LAW

Deposits Under Companies Act, 2013 & Deposits Rules

What is Deposits as per the Companies Act,2013?

Section 2 (31) of Companies Act and Rule 2(1)(v) DEFINITION OF DEPOSIT ‘Deposit’ includes any receipt of money by way of deposit or loan or in any other form, by a company but does not include;

• Any amount received from the CG or a SG, or any amount received from any other source whose repayment is guaranteed by the CG or a SG, or any amount received from a local authority, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature;
• Any amount received from Foreign Governments, foreign or international banks, multilateral financial institutions, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of Foreign Exchange Management Act, 1999 (42 of 1999) and rules and regulations made there under;
• Any amount received as a loan or facility from any Bank or FI;
• Any amount received as a loan or financial assistance from Public Financial Institutions notified by the Central Government in this behalf in consultation with the Reserve Bank of India or any regional financial institutions or Insurance Companies or Scheduled Banks as defined in the Reserve Bank of India Act, 1934
• Any amount received against issue of commercial paper or any other instruments issued under guidelines or notification issued by RBI;
• Any amount received by a company from any other company (Inter-corporate Deposits);
• Any amount received towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, provided that securities are allotted within 60 days from the date of receipt of money failing which, money should be refunded within 15 days after the expiry of 60 days, otherwise it shall be treated as deposit;
• Any amount received from a person who, at the time of the receipt of the amount, was a director of the company or a relative of the director of the Private company, provided it is not being given out of borrowed funds;
• Any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking Pari passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within ten years, provided the amount of borrowing is not more than the market value of such assets assessed by a registered value;
• Any amount raised by issue of non-convertible debenture not constituting a charge on the assets of the company and listed on a recognised stock exchange as per applicable regulations made by Securities and Exchange Board of India
• Any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest-bearing security deposit;
• Any non-interest-bearing amount received or held in trust;
• Any amount received in the course of, or for the purposes of the business of the company, such 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 three hundred and sixty five 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;

• Any amount received in the course of, or for the purposes of the business of the company which are as follows:

1. as an advance, accounted for in any manner whatsoever, received in connection with consideration for an immovable property
2. as a security deposit for the performance of the contract for supply of goods or provision of services for supply of capital goods
3. as an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement, if the period for providing such services does not exceed the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less;
4. as an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;
5. as an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications

Provided that if the aforesaid amount becomes refundable on account of not getting the requisite approval/permission, then the money should be refunded within 15 days from the date it becomes due for refund, otherwise it shall be treated as deposit;

• Any amount brought in by the promoters of the company by way of unsecured loan subject to fulfilment of the following conditions, namely: –

1. a) The loan is brought in pursuance of the stipulation imposed by the lending FI or bank on the promoters to contribute such finance;
2. b) The loan is provided by the promoters themselves or by their relatives or by both and not by their friends and business associates; and
3. c) The exemption shall be available only till the loans of financial institution or bank are repaid and not thereafter.

• Any amount accepted by a Nidhi company in accordance with the rules made under section 406 of the Act.

 

It may be noted that Sections 73 and 76 and Companies (Acceptance of Deposits) Rules, 2014 do not apply to acceptance of deposits by Banking Companies, NBFCs, Housing Finance Companies and such other class of notified companies. The acceptance of deposits by the aforesaid companies is governed by different norms.

 

DEPOSITOR RULE 2 (1) (d):

-Any member of the company who has made a deposit with the company u/s 73 of the Companies Act; or

-Any person who has made a deposit with an eligible company u/s 76 of the Companies Act.

ELIGIBLE COMPANY: RULE 2(1)(e)

-A Public company having a net worth of not less than Rs. 100 Cr. or a turnover of not less than Rs. 500 Cr. and which has obtained the prior consent of the company in General Meeting by means of a Special Resolution and filed the said resolution with the ROC and where applicable, with the RBI before making any invitation to the public for acceptance of Deposits;

Provided that an eligible company, which is accepting deposits within the limits specified u/s 180(1)(c), may accept deposits by means of an ordinary resolution.

KINDS OF DEPOSITS:

1. Acceptance of deposit from Members: Any company (whether private or public) can accept deposits from its members, subject to the passing of a resolution in general meeting and the commencement of this Act or payment of interest on such deposits. [Section 73].
2. Acceptance of deposits from the Public: Only a public company, having a net worth of not less than Rs. 100 Cr. OR a turnover of not less than Rs. 500 Cr., can accept deposits from the Public. Such kind of public company, shall be referred to as ‘Eligible Company.

SECTION 73 PROHIBITION ON ACCEPTANCE OF DEPOSIT FROM PUBLIC:

(1) No company shall invite, accept or renew deposits under this Act from the public except in a manner provided under Chapter V. Exceptions:

-A banking company

-Non-banking financial company as defined in RBI Act, 1934 and

-To such other company as the CG may, after consultation with the Reserve Bank of India, specify in this behalf.

(2) Section 73(2) states that a company may, subject to

-The passing of a resolution in General Meeting and

-Subject to such rules as may be prescribed in consultation with the RBI, accept the deposits from its members on such terms and conditions, including the provisions of security, if any, on such repayment of such deposits with interest , as may be agreed upon between the company and its members, Subject to the fulfilment of the following conditions, namely

a)Issuance of a circular to its members including therein a statement showing the financial position of the company, the credit rating 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 such manner as may be prescribed.

1. b) Filing a copy of the circular along with such statement with the ROC 30 days before the date of issue of the circular;
2. c) Depositing sum not less than 20% of the amount of its deposits maturing during a FY and the FY next following, and kept in a scheduled bank in a separate bank account to be called as Deposit Repayment Reserve Account;
3. d) 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 and where such default has occurred, the company made good the default and a period of 5 years had lapsed since the date of making good the default.
4. e) Providing security, if any for the due repayment of the amount of deposit or the interest thereon including the creation if such charge on the property or assets of the company. In case when 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.

(3) Section 73(3) states that every deposit accepted by a company shall be repaid with interest as per terms and conditions of the agreement.

(4) Section 73(4) If a company fails to repay the deposit or part thereof or any interest thereon, the depositor concerned may apply to NCLT for an order directing the company to pay the sum due or for any loss or damage incurred by him as a result of such non-payment and for such other orders as NCLT may deem fit.

(5) Section 73(5) The deposit repayment reserve account shall not be used by the company for any purpose other than repayment of deposits.

SECTION 74 REPAYMENT OF DEPOSITS:

(1) When, in respect of any deposit accepted by a company before the commencement of this Act, the amount of such deposit or part thereof or any interest due thereon remains unpaid on such commencement or becomes due at any time thereafter, the company shall-

-File, within a period of 3 months from such commencement or from the date on which such payments are due, with the ROC 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, notwithstanding anything contained subject to which the deposit was accepted or any scheme framed under any law; and

-Repay within 3 years from such commencement or on or before expiry of the period for which the deposits were accepted. w.e.f.

Provided that renewal of any such deposits shall be done as per provisions of chapter V and rules made thereunder.

(2) Section 74(2) states that the NCLT may on an application made by the company, 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.

(3) Sec 74(3) states that if a company fails to repay the deposit or part thereof or any interest thereon within specified time or such further time as may be allowed by NCLT, the company shall be punishable with fine à Rs. 1 Cr. to Rs. 10 Cr and Every officer in default shall be punishable with imprisonment up to 7 years OR with fine minimum Rs. 25 Lakhs and maximum Rs. 2 Cr, OR with both.

SECTION 75: DAMAGES FOR FRAUD:

(1)Section 75 provides that in case the company fails to pay the deposit or any interest thereon within one year from the commencement of the Act or from the date on which such payments becomes due, whichever is earlier, or within such time periods as allowed by the NCLT and it is proved that the deposits had been accepted with intent to defraud the depositors, every officer who was responsible for acceptance of such deposits shall be liable without prejudice to the visions contained under Section 74 and liability for fraud u/s 447, be personally responsible, without any limitation of liability for all losses or damages incurred by the depositors.

(2) For failure to repay the deposits, action may also be taken by any person, group of persons or any association of persons who had incurred any loss as a result such failure.

SECTION 76: ACCEPTANCE OF DEPOSITS FROM PUBLIC BY CERTAIN COMPANIES:

(1) Notwithstanding anything contained in section 73  a public company, having such net worth or turnover  as may be prescribed ,may accept deposits from persons other than its members subject to compliance with the requirements provided in sub-section (2) of  section 73  and subject to such rules as the Central Government may, in consultation with the Reserve Bank of India, prescribe:

Provided that such a company shall be required to obtain the rating (including its net worth, liquidity and ability to pay its deposits on due date) from a recognised credit rating agency for informing the public the rating given to the company at the time of invitation of deposits from the public which ensures adequate safety and the rating shall be obtained for every year during the tenure of deposits:

Provided further that every company accepting secured deposits from the public shall within thirty days of such acceptance, create a charge on its assets of an amount not less than the amount of deposits accepted in favour of the deposit holders in accordance with such rules as may be prescribed.

(2) The provisions of this Chapter shall, mutatis mutandis, apply to the acceptance of deposits from public under this section.

PENALTY FOR VIOLATION OF THE PROVISION OF DEPOSITS [Section 76A]

(1) Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 or section 76 or rules made thereunder or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76  or rules made thereunder or such further time as may be allowed by the Tribunal under  section 73,—

(a) 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 one crore rupees or twice the amount of deposit accepted by the company, whichever is lower rupees but which may extend to ten crore rupees; and

(b) every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years and with fine] which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees.

Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447.

SOME IMPORTANT POINTS TO BE NOTED ABOUT DEPOSITS:

• No company shall accept or renew any deposit, which is repayable on demand; or on notice; or after a period of less than 6 months or more than 36 months from the date of acceptance or renewal of such deposits, as the case maybe.
• For a Company other than an Eligible Company: It may accept or renew any deposit from its members, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits does not exceed 25% of the aggregate of the paid-up share capital and free reserves of the company.
• An Eligible Company, other than a Government Eligible Company, can accept or renew deposits, together with existing deposits, subject to the following ceiling: –

> Deposits from Members: 10% of the aggregate of paid-up share capital and free reserves.

> Any other Deposits: 25% of the aggregate of paid-up share capital and free reserves.

> A Government Eligible Company can accept or renew deposits, together with existing deposits, up to 35% of aggregate of its paid-up capital and free reserves.

• Every Eligible Company intending to invite deposits shall issue a circular in the form of an advertisement in Form DPT-1.
• No company shall issue circular or circular in the form of an advertisement inviting deposits unless, not less than 30 days on before the date of its issue, a copy of the same has been delivered to the Registrar of Companies for registration.

 

RETURN OF DEPOSITS (DPT-3):

• All the Company having any outstanding loan/amount as on 31st March of every financial year has to furnish details and bifurcation of such outstanding amount irrespective of the fact whether such amount is falling under the definition of deposit.
• On or before 30th June of every year in form DPT-3.

CONCLUSION:

With reference to the above-mentioned information is the full analysis on the definition of deposits and the provisions of deposits comprising of Section 73 to 76A of Companies Act, 2013 and recent amendments if any.