Sunday, 16 March 2014


Chapter V of the Companies Act 2013 (Sec 73 – 76), Draft Rules of the Companies Act 2013


Companies Act 1956 (Sec 58 A)

Applicability:  To all Companies other than the following with effective from April 1, 2014


- Banking companies,
- Housing Finance Companies and
- Such companies specified by Central Government

Major Changes in comparison with the Companies Act 1956:

-            Introduction of stringent procedure for acceptance of deposits from members , including appointment of Deposit Trustee similar to Debenture Trustee 
-             Introduction of the concept of “Deposit Insurance”

Deemed Deposit:

a.          Share application money: money has been received but securities were not allotted within 60 days from the date of receipt, nor it was refunded within 15 days from the completion of 60 days.

b.         When money is received from the director or shareholder without obtaining a declaration stating that “the amount deposited is not being given out of the funds acquired by him by borrowing or accepting loans or deposits from others.”

c.          Bonds and debentures issued exceeding market value.

d.         Deposits by Employees in excess of their annual salary in the nature of Non-interest bearing security deposits.

e.         If the company does not refund the amount received in the course of business as advance for dealing in goods or properties or services even when it does not have any permission to deal in the same. 
Acceptance of deposits by companies:

-     No company shall accept any deposit that is repayable on demand or on receiving a notice within a period of less than 6 months or more than 36 months from the date of acceptance or renewal of deposit.

-          Companies can take short term deposits satisfying the following conditions:
o   Deposits < 10% of the aggregate of  paid up share capital and free reserves of the company and
o   Repayable not earlier than 3 months from the date of deposit or renewal

-          No company shall accept deposit or renew deposit

o   From members : if the O/S deposit as on the date of acceptance or renewal of deposit exceeds10% of the paid up share capital and free reserves

o   From others: if the deposits outstanding as on the date of acceptance or renewal of such deposits exceeds 25%of the aggregate of the paid up share capital and free reserves

o   From Government companies: if the deposits outstanding as on the date of acceptance or renewal of such deposits exceeds 35%of the aggregate of the paid up share capital and free reserves

Rate of Interest on Deposit:

Same as interest rate prescribed by the RBI for Deposits taken by NBFCs

Procedural Flow Chart for Acceptance of Deposits under the Companies Act 2013


Detailed Procedure for Companies to invite, accept or renew deposits from the public:

Sr No
Company to pass a Resolution in General Meeting subject to the rules and procedures specified by the RBI. (ie. Terms and Conditions for acceptance, repayment of deposit and details of security if any and other related information)

The circular to be filed with ROC within 30 days before issuing the same to the members. (Form No 1)
a.      The circular to contain the following information:
                 i.           Financial position
                ii.           Credit rating
              iii.           Total number of depositors and amount due towards deposits
b.      The circular to be advertised in a vernacular newspaper where the registered office of the Company is situated, and on the website of the Company.

c.       Validity of the Circular: The circular shall be valid until the expiry of 6 months from the date of closure of the financial year or until the date of the AGM where the financials are laid before the Members and if no AGM is conducted during the year then, it shall be valid until the due date of the AGM.

Deposit Repayment Reserve Account:
A sum of not less than 15% of the amount of deposit maturing during a financial year shall be deposited in a separate bank account namely Deposit Repayment Reserve Account in a scheduled bank. This amount shall be used only to repay the deposits and care shall be taken that the amount deposited is not less than 15 % at any time during the deposit period.
Deposit Insurance:
-      Company to take deposit insurance atleast 30 days before the issue of the circular.
-      The deposit insurance shall provide for full payment of the deposit amount if it is less than Rs. 20000 or a minimum of Rs, 20, 000 when it exceeds such amount.
No Default Certificate

No Default Certificate to be produced

Creation of Charge:
Appointment of Trustee:
The Company shall appoint a Trustee and shall file Form 2 at least 7 days before issuing the circular.

A charge may be created on the security of the company for repayment of the deposit. (Creation of charge is optional as the words used are “if any”).
The security to be created in favor of the Trustee on behalf of the deposit holders.

What is the manner of creation of the charge? Should form 8 be filed or would another form be introduced by the MCA?

Deposit receipts
Within 2 weeks from the date of receipt of money or realization of cheques the Company to furnish the deposit receipts to the depositors.

On Failure to repay deposits:

-          The depositor concerned can apply to the Tribunal for an order.

Query: What is the penal provision if the company defaults in complying with the Order of the Tribunal?


-          The penal rate of interest shall be 18% p.a

Deposits accepted prior to the applicability of the Companies Act 2013:

Repayment of deposits etc., Accepted before commencement of this Act: Sec 74

-          Statement to be filed: The Company to file a statement containing the details of deposits accepted, due and other related details within 3 months from the date of commencement of the act or from the due date on which the payments are due.

-          To repay the deposits that are due within 1 yr from the date of commencement of act or from the due date whichever is earlier.

-          If the company is unable to repay within 1 year it can approach the tribunal and request for granting extension of time for repayment of the deposits.

Failure to repay within the time limit granted by the Tribunal:

-          Fine:  Rs. 1 Crs  - Rs 10 Crs
-          Officer in default:
o   Imprisonment: Upto 7 years
o   Fine: Rs 25 L – Rs 2  Crs

Damages for Fraud: Sec 75

Criteria: Intention to defraud the depositors:  The aggrieved depositor can initiate legal proceedings against the company for the losses incurred by him.

Register of deposits:

Every company shall maintain register(s)for deposits accepted / renewed, as detailed in the rules.

Return of deposit to be filed with the Registrar:

Every company to whom these rules apply shall file with the registrar along with a copy to RBI, a return in Form 3 audited by the auditor who shall give his report as per the form on or before June 30thof every year

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