Acceptance Of Deposits By Companies Under Companies Act, 2013

Chapter V of the Act deals
with the acceptance of deposits by companies.  For that purpose the
Central Government, in consultation with Reserve Bank of India, makes the rule
namely ‘The Companies (Acceptance of Deposits) Rule, 2014.  This rule came
into effect from 01.04.2014

Non applicability
The provisions relating to acceptance of
deposits as in the Act and the rules made there under shall not applicable to
the following companies:
  • A banking company;
  • A non banking financial company as defined in the
    Reserve Bank of India Act, 1934 registered with the Reserve Bank of India;
  • A housing finance company registered with
    National Housing Bank established under the National Housing Banking Act;
    and
  • A company specified by the Central Government
    under the proviso to Section 73(1) of the Act.
The provisions relating to acceptance of
deposits are applicable to the companies other than specified above.
Rule 2(1)(e) defines the term
‘eligible company’ as a public company as referred to in Section
76(1)having a net worth of not less ₹ 100 crores
or a turnover of not less than ₹ 500 crores
and which has obtained the prior consent of the company in general meeting
by means of a special resolution with the Registrar of Companies  before
making any invitation to the Public for acceptance of deposits.
Section 76(1) provides that
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 Section 73 (2) and subject to such rules as the Central
Government may, in consultation with the Reserve Bank of India prescribe. 
Such a company shall be required to obtain the rating from a recognized 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 or
deposits.  The company accepting secured deposits from the public shall
within 30 days of such acceptance, create a charge on its assets of an amount
not less than the amount of deposits accepted in favor of the deposit holders in
accordance with such rules as may be prescribed.

Definition of ‘deposit’
Rule 2(c) defines the term ‘deposit’
as including any receipt of money by way of deposit or loan or in any other
form by a company.   The deposit does not include-
  • Any amount received from-
  • Central government or a State Government; or
  •  any amount received from any other source
    whose repayment is guaranteed by the Central Government or a State
    Government; 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, including
    but not limited to International Financial  Corporation, Asian
    Development Bank, Common wealth Development Corporation and International
    Bank for Industrial and Financial Reconstruction;
  • Foreign Governments owned development financial
    institutions;
  • Foreign export credit agencies;
  • Foreign collaborators;
  • Foreign corporate bodies and foreign citizens;
  • Foreign authorities or persons resident outside
    India subject to the provisions of Foreign Exchange Management Act,
    1999 and rules and regulations made there under;
  • Any amount received as a loan or facility from-
  • Any banking company or
  • State Bank of India or any of its subsidiary
    banks ; or
  • A banking institution notified by the Central
    Government under Section 51 of the Banking Regulation Act, 1949; or
  • A corresponding new bank as defined in Clause (d)
    of Section 2 of the Banking Companies (Acquisition and Transfer of
    Undertakings) Act, 1970; or in clause (b) of Section 2 of the
    Banking  (Acquisition and Transfer of Undertaking) Act, 1980; or
  • A co-operative bank as defined in Clause (b-ii)
    of Section 2 of the Reserve Bank of India Act, 1934.
  • 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;
  • Any amount received against issue of commercial
    paper or any other instruments issued in accordance with the guidelines or
    notification issued by the Reserve Bank of India;
  • Any amount received by a company from any other
    company;
  • Any amount received and held pursuance to an
    offer made in accordance with the provisions of the Act towards
    subscription to any securities, including share application money or
    advance towards allotment of securities pending allotment, so long as such
    amount is appropriated only against the amount due on allotment of the
    securities applied for.  For this purpose it is clarified by the
    Central Government that-
  • Without prejudice to any other liability or
    section, if the securities for which application money or advance for such
    securities was received cannot be allotted within 60 days from the date of
    receipt of the application money or advance for such securities and such
    application money or advance is not refunded to the subscribers within 15
    days from the date of completion of 60 days, such amount shall be treated
    as a deposit under these rules. It is provided (newly inserted proviso
    with effect from 31.03.2015) unless otherwise required under
    the Companies Act, 1956 or the SEBI Act, 1992 or rules or
    regulations made there under to allot any share, stock, bond or debenture
    within a specified period, if a company had received any amount by way of
    subscriptions to any shares, stock, bonds or debentures before 01.04.2014
    and disclosed it in the balance sheet for the financial year ending on or
    before 31.03.2014 against which the allotment is pending on 31.03.2015,
    the company shall, by 01.06.2015 either return such amounts to the persons
    from whom these were received or allot shares, stock, bonds or debentures
    or comply with these rules;
  • Any adjustment of the amount for any other
    purpose shall not be treated as refund.
  • Any amount received from a person who, at the
    time of receipt of th amount, was a director of the company.  
    The director from whom money is received, furnishes to the company at the
    time of giving the money, a declaration in writing to the effect that the
    amount is not being given out of funds acquired by him by borrowing or
    accepting loans or deposits from others;
  • 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 Actexcluding intangible assets of
    the company or bonds or debentures compulsorily convertible into shares of
    the company within five years.   If such bonds or debentures are
    secured by the charge of any assets referred to in Schedule III of the
    Act, excluding intangible assets, the amount of such bonds or debentures
    shall not exceed the market value of such assets as assessed by a
    registered valuer.
  • 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-
  1. 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.   In case any advance which is subject matter of any legal
    proceedings before any court of law, the said time limit of these 365 days
    shall not apply;
  2. an advance accounted for in any manner
    whatsoever, received in connection with consideration for an immoveable
    property under an agreement or arrangement, provided that such advance is
    adjusted against such property in accordance with the terms of agreement
    or arrangement;
  3. as security deposit for the performance of the
    contract for supply of goods or provision fo services;
  4. as advance received from long term projects for
    supply of capital goods except those covered under the item (b)
    above.  If the amount received under items (a), (b) and (d) above
    becomes refundable, with or without interest, due to the reasons 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, then the amount received shall be
    deemed to be a deposit under these rules.
For the purposes of this sub clause the
amount referred to in the proviso shall be deemed to be deposits on the expiry
of 15 days from the date they become due for refund.
  • Any amount brought by the promoters of the
    company by way of unsecured loan in pursuance of the stipulation of any
    lending financial institution or a bank subject to fulfillment of the
    following conditions namely:
  • The loan is brought in pursuance of the
    stipulation imposed by the lending institutions on the promoters to
    contribute such finance;
  • The loan is provided by the promoters themselves
    or by their relatives or by both; and
  • The exemption under this sub clause 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.  For this purpose any amount-
  • Received by the company, whether in the form of
    installments or otherwise, from a person with a promise or offer to give
    returns, in cash or in kind, on completion of the period specified in the
    promise or offer, or earlier, accounted for in any matter whatsoever; or
  • Any additional contributions, over and above the
    amount under above made by the company as part of such promise or offer
shall be treated as a deposit.

Conditions prescribed for accepting
deposits
Section 73(2) provides that the
company may, subject to=
  • the  passing of resolution in general
    meeting; and
  • such rules as may be prescribed by the Central
    Government in consultation with the Reserve Bank of India,
accept deposits from its members on such
terms and conditions including the provision of security, if any, or for the
repayment of such deposits with interest, as may be, agreed upon between the
company and its members.  The acceptance of deposits under this Section is
subject to the following conditions:
  • a circular shall be issued to its members which
    include 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 form and in such
    manner as may be prescribed;
  • filing a copy of the circular along with such
    statement with the Registrar within 30 days before the date of issue of
    the circular;
  • depositing such sum which shall not be less than
    15% of the amount of the deposit maturing during a financial year 
    and the financial year next following and kept in a scheduled bank in a
    separate bank account to be called as deposit repayment reserve account;
  • providing such deposit insurance in such manner
    and to such extent as may be prescribed;
  • certifying that the company has not committed in
    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
  • 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.
Rule 3 provides for the terms and
conditions for acceptance of deposits by the companies.  The said Rule
provides that with effect from 01.04.2014, no company under Section
73(2) and no eligible company shall-
  • accept or renew any deposit whether secured or
    unsecured, which is repayable on demand or upon receiving a notice within
    a period of less than 6 months or more than 36 months from the date of
    acceptance or renewal of such deposits;
  • accept or renew-
  • any deposit from its members, if the amount of
    such deposits together with the amount of deposits outstanding  as on
    the date of acceptance or renewal of such deposits from members exceeds
    10% of the aggregate of the paid up share capital and free reserves of the
    company;
  • any other deposit, if the amount of such
    deposit  together with the amount of such other deposit, if the
    amount referred to in the above clause, outstanding on the date of
    acceptance or renewal exceeds 25% of aggregate or the paid up share
    capital and free reserves of the company;
  • invite or accept or renew any deposit in any
    form, carrying a rate of interest or pay brokerage thereon at a rate
    exceeding the maximum rate of interest or brokerage prescribed by the
    Reserve Bank of India for acceptance of deposits by non banking financial
    companies.  The Central Government clarified that the person who is
    authorized, in writing, by a company to solicit deposits on its behalf and
    through whome deposits are actually procured shall only be entitled to the
    brokerage and payment of brokerage to any other person for procuring
    deposits shall be deemed to be in violation of these rules.
The other conditions are as follows:
  • If the depositors wants, the deposits may be
    accepted in joint names not exceeding three, with or without any of the clauses,
    namely ‘jointly; , ‘either or survivor’, ‘first named or survivor’ ‘anyone
    or survivor’;
  • A company may, for the purpose of meeting any of
    its short term requirements of funds, accept or renew such deposits for
    repayment earlier than 6 months from the date of such deposit or renewal
    as the case may be subject to the condition that-
  • Such deposits shall not exceed 10% of the
    aggregate of the paid up share capital and free reserves of the company;
    and
  • Such deposits are repayable not earlier than
    three months from the date of such deposits or renewal thereof;
  • No Government company eligible to accept to
    accept deposits shall accept or renew any deposit, if the amount of such
    deposits together with the amount of other deposits outstanding as on the
    date of acceptance or renewal exceeds 35% of the aggregate of its paid up
    share capital and free reserves of the company;
  • The    company shall not reserve
    to itself either directly or indirectly a right to alter, to the prejudice
    or disadvantage of the depositor, any of the terms and conditions of the
    deposit, deposit trust deed and accept insurance contract after circular
    or in the form of advertisement is issued and deposits are accepted.
  • Every eligible company shall obtain, at least
    once in a year, credit rating for deposits accepted by it with effect from
    31.03.2015.
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Name of agency
Minimum investment credit rating
  1. The
    Credit Rating Information Services of India Limited
FA- (FA Minus)
  1. ICRA
    Limited
MA- (MA Minus)
  1. Credit
    Analysis and Research Limited
CARE BBB(FD)
  1. Fitch
    Ratings India Private Limited
tA-(ind)(FD)
  1. Brickwork
    Ratings India Private Limited
BWR F A
  1. SME
    Rating Agency of India Limited
SMERA A”
A copy of the rating shall be sent to the
Registrar of Companies along with the return of deposits in Form DPT – 3.

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