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Discussion > Corporate Law > Others >

COMPANY DEPOSIT RULES

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www.aubsp.com


[ Scorecard : 15266]
Posted On 27 November 2010 at 17:12 Report Abuse

 

COMPANY DEPOSIT RULES

 

     

Section 58A of Companies Act, 1956 has put restrictions on acceptance of deposits by any company subject to rules being prescribed. Accordingly, Companies (Acceptance of Deposits) Rules, 1975 were prescribed which lay down various regulations and procedures for acceptance of deposits by companies. The important provisions of the Rules are summarised as under :

1.

The rules do not apply to banking companies and financial companies for which RBI have separately prescribed rules.

2.

Deposit means deposit of money with, and includes any amount borrowed by, a company, but does not include certain types of borrowings; viz., amount received :

 

a)

from Government Local Authority, Foreign Government or any other foreign person, citizen or authority or any amount guaranteed by Government.

 

b)

from Banks.

 

c)

from various Government or semi-Government financial Cos. or Corporation/insurance Cos. or a public financial institution as may be notified by the CG.

 

d)

from any other company.

 

e)

by way of security deposit from an employee.

 

f)

by way of security or advance from any purchasing, selling or other agents in the course of business or any advance received against orders for supply of goods, properties or services.

 

g)

by way of subscripttion to any share, stock, bonds or debentures pending allotment. Any amount received by way of calls in advance so long as this is not repayable under the Articles.

 

h)

in trust or in transit.

 

i)

also refer to amendments in Section 3(1)(iii) and S. 43A by the Companies Amendment (Act), 2000.

 

j)

by a private company from a director or member out of his own funds (that is not borrowed or accepted from others). The director/shareholder concerned however has to furnish a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others. Also refer to amendments in section 3(1)(iii) and section 43A by the Companies (Amendment) Act, 2000.

 

k)

by issue of bonds or debentures secured by the mortgage of any immovable property or with an option to convert them into shares. Provided the amount does not exceed the market value of property.

 

l)

from promoters by way of unsecured loans pursuant to agreement with financial institutions for loans so long as such loans are outstanding.

3.

The company shall not accept any deposit which is repayable :

 

a)

on demand

 

b)

on notice

 

c)

before 6 months or after 36 months from date of deposit.

4.

Limits up to which deposits can be accepted :

 

 

% of Paid-up capital
and free reserves

1.

Short-term deposit for a period not less than three months

10

2.

Deposit from shareholders in case of public Co./ deposit
guaranteed by Directors or deposits against unsecured debentures

10

3.

Deposits from public

25

 

A company with Net Owned Fund (NOF) of less than Rs. 100 lakhs shall not invite public deposits. NOF shall have the same meaning as contained in RBI Act, 1934.

5.

W.e.f. March 1st, 1997 no company shall accept or renew any deposits in any form if it is in default in the repayment of any deposit or part thereof and any interest thereon in accordance with the terms and conditions of such deposits.

6.1

Paid-up capital and free reserves should be as per latest audited balance sheet.

6.2

Free reserves do not include

 

a)

reserve created for payment of future liability, for depreciation or for bad debts

 

b)

reserve created by revaluation of assets

6.3

Free reserves include

 

a)

balance in share premium account

 

b)

capital or debenture redemption reserve

6.4

Following have to be reduced from capital and reserves:

 

a)

accumulated balance of loss

 

b)

balance of deferred revenue expenditure

 

c)

intangible assets if disclosed in Balance Sheet

7.1

Interest can be paid at maximum rate of 12.50% [changed to 14% w.e.f. 22-5-2001 and to 12.5% w.e.f. 4-2-2002]

7.2

If a deposit is prematurely repaid, the company can pay interest at a rate 2% less than that which the company would have paid had the deposit been accepted for the period for which the deposit had run.

7.3

Brokerage can be paid as under :

Period of deposit

Maximum rate

up to one year

1%

between one and two years  

1.5%

beyond two years

2%

8.

A depositor may make a nomination in Form No. 2B at any time and the provisions of sections 109A and 109B would apply accordingly.

9.

Every Co. has to deposit or invest at least 15% of its deposits maturing during the F.Y. ending 31st March every year latest by 30th April in the beginning of the year in any of the specified assets taken at their market value and the said sum can be utilised only for repayment of deposits maturing during the year but at no time the amount shall fall below 10% of the amount maturing before 31st March of that year.

10.1

Every Co. intending to invite/causing any other person to invite deposits shall issue an advertisement for this purpose in a leading English newspaper and in 1 vernacular newspaper circulating in the State in which registered office of the Co. is situated.

10.2

The text of the advertisement has to be approved by the Board of Directors in their meeting and the advertisement once given will be valid up to the date of next AGM or until the expiry of 6 months from the date of closure of the F.Y. in which this advertisement is issued whichever is earlier.

10.3

Without a valid advertisement a company cannot invite deposits. A copy of such advertisement duly signed by a majority of the Directors on the Board has to be filed with the Registrar of Companies. The details of advertisement and the form are prescribed in the Rules.

10.4

If a company does not invite deposits but still wants to accept deposits, it can do so without issuing an advertisement by filing a statement in lieu of advertisement giving the same information each year with the Registrar of Companies.

11.

Company is required to file a return with the Registrar of Companies and a copy to RBI on or before 30th June every year containing information as on 31st March of that year duly certified by the auditors of the Company in a prescribed form.

12.

Penalty is provided in the Act and Rules for the Co. in default and every officer of the Co. in default for such contravention.

 

A penal interest of 18% shall become payable for overdue period in case of public deposits matured and claimed but remaining unpaid.

13.

Small Scale Industries

 

The provisions of S. 58A of the Companies Act, 1956 and the rules regarding acceptance of deposits do not apply to a company which is SSI unit as described in Notifn. dtd 2.2.1996 issued by Dept. of Company Affairs with effect from 2.2.1996. To avail of this exemption, a Co. should fulfil the following conditions :

 

a)

It should be registered with the Directorate of Industries or Directorate of Small-scale Industries.

 

b)

Its investment in plant and machinery should not exceed Rs. 100 lakhs in value.

 

c)

Its paid-up capital should not exceed Rs. 25 lakhs.

 

d)

It should not accept deposits from more than 100 people.

 

e)

There should be no invitation to the public for deposits.

 

f)

 

The amount of deposits should not exceed Rs. 20 lakhs or its paid-up capital, whichever is less.

14.1

The Central Government is empowered to grant exemption or extension of time to a company or a class of companies from some or all of the provisions of Deposit Rules.

14.2

The Tribunal is now empowered to extend the time of repayment of deposits upon certain conditions being fulfilled.

Note : Where Co. has defaulted in repayment of any deposits or any part thereof or interest thereon in accordance with the terms and conditions of such deposits, it shall not make any loan or give any guarantee u/s. 370/shall not be entitled to invest in the share of any other body corporate u/s. 372 till the default is made good [Companies (CG’s) General Rules and Forms (Amendment) Rules, 1997.]

     

 



Total thanks : 1 times

Online classes for CA CS CMA



CS Ankur Srivastava
Company Secretary & Compliance Officer


[ Scorecard : 14921]
Posted On 27 November 2010 at 17:18

PROVISIONS RELATED TO DEPOSIT

 

·        Section 58A(2) prohibits invitation of deposits unless and advertisement has been published in the prescribed form in the manner specified in Rule 4 of the Companies (Acceptance of Deposit) Rules, 1975.

 

·        No company with a Net Owned Fund of less than Rs. 1 Crore shall invite public deposit.

 

·        Net Owned Fund Means

a.       Aggregate of the paid up capital and free reserve as disclosed in the latest balance sheet of the company after deducted therefrom

§         Accumulated balance of loss

§         Deferred revenue expenses

§         Other intangible assets

 

b.      Further reduced by the amount representing

§         Investment of such company in shares of

·        Its subsidiary

·        Companies in same group

·        All other Non Banking Financial Companies

 

§         The book value of debentures, bonds, outstanding loans and advances (include Hire purchase and lease finance) made to and deposits.

·        Subsidiary of such company

·        Contribution in the same group to the extent such amount exceed 10 % of (a) above.

 

·                    No advertisement shall be issued by or on behalf of the Company unless on or before the date of issue of advertisement it has been delivered and received by the ROC signed by the majority of directors of the board.

 

·                    A company may accept deposits upto following limits:-

 

o                   Upto 10% of its paid up capital and free reserves from its shareholders (other than shareholders in the private company). These deposits may also includes any deposit from any person guaranteed by a director of the company or against unsecured debenture issued by the company.

o                   Upto 25% of the paid up capital and free reserves of the company from public.

 

·                    Rule 3(2A) provides that a Government Company may accept or renew deposit if the amount of such deposit does not exceed 35% of its paid up capital and free reserves including any short term deposit accepted by the Government Company upto 10% of its paid up capital and free reserves.

·                    Rule3A of the deposit rules requires every company which has accepted/invited deposit within the meaning of Section 58A read with Rule 2(b), to deposit or invest on or before 30th April every year, a sum of not less than 15% of the amount of deposit maturing during the year ending on 31st March next following, in any or more of the mode sated therein.

Rule 3A(2) provides that the amount deposited or invested shall not be utilized for any other purpose other than for the repayment of deposits maturing during the year provided that the amount deposited or invested shall not at any time fall below 10% of the amount of deposit maturing till 31st March of that year.

 

·                    Amount may be deposited or invested in any or more of the following modes:-

 

o       In current or the deposit account with a scheduled bank free from any charge or lien.

o       In unencumbered securities of Central Government or State Government.

o       In unencumbered bonds issued by HDFC

 

·                    Under Rule 3(1)(a) a company cannot accept or renew deposit if it is repayable

o                                                                                                                                     On demand

o                                                                                                                                     On notice

o                                                                                                                                     Within  a period of 6 months

o                                                                                                                                     After the period of 3 years

 

First proviso of that rule provides that the company may accept short term deposit repayable earlier than 6 months but not earlier than 3 months upto     10 % of the aggregate of the paid up capital and free reserves.

 

·                    As per amendment dated 29/09/2003 in Rule 3(1)( c) a company can pay interest not exceeding 12.5% p.a., as specified by RBI, which shall be paid or compounded at rest which shall not be shorter than monthly rests.

 

·                    Every company accepting deposit is required to keep at its registered office, register of deposit and the following particulars is required to entered therein

o       Name and address of the depositor

o       Date and amount of each deposit

o       Duration of deposit and the date on which each deposit is repayable

o       Rate of interest

o       Date of interest

o       Any other particulars.

 

·                    Rule 7(2) provides that the register shall be kept in good order for a period of not less than 8 years form the date of first entry is made in the register.

And there is no rules giving any right or inspection to any person or taking

extracts from the register or obtain copy thereof.

·                    Section 58A (3A) creates a statutory obligation to repay the deposits on its maturity, unless it is renewed for a further period. The breach of which results an offence punishable under the Companies Act.  In case of payment before the date of maturity the Company may deduct the amount of interest by reducing the rate by 1%.

 

·                    As per Rule 8A the penal rate of interest is 18% shall be paid for overdue period in case of public deposit matured, claimed and remain unpaid. In case of  default is made relating to small depositors the penal rate of interest is 20%.

 

·                    Under Rule 10 every company to which the deposit rules apply is required to file with ROC a Return of Deposit on or before 30th June every year. It should keep particulars with regard to deposits as on 31st March of that year. It is filled in attachment in e-form 62.It should be duly certified by the auditors of the Company and the Certificate of Auditor should be filled along with the return.

 

·                    Non compliance of the rule is treated as cognizance offence and of continuing nature. However if no complaint is made within 6 months of 30th June, relating to the offence of not filing of return, is not punishable.

 

·                    The Return of Deposit is required to be accompanied with the Certificate of Manager and this Manager’s Certificate is required to be signed by the Authorised Officer of the Company.



Total thanks : 1 times




Suresh Prasad
www.aubsp.com


[ Scorecard : 15266]
Posted On 28 November 2010 at 00:54

tHANKS A LOT FOR CONTRIBUTION OF YOUR OWN NOTES......

KEEP SHARING SIR.




Sachchidananda Ghosal
MBA(Finance) PGPBM-Banking & Insurance B.Com


[ Scorecard : 167]
Posted On 22 February 2011 at 23:59

Thank you sir




Jaideep
Service


[ Scorecard : 1344]
Posted On 23 February 2011 at 10:14

Its of gr8 help...Thank Sir for sharing...

 

Regards

Jaideep Pandya




Jyotika
Company secretary


[ Scorecard : 140]
Posted On 01 April 2011 at 08:46

Dear all,

Can anyone clarify that if a public ltd company takes loan from other Private Ltd. company(which  is member in pub ltd. co,)  whether deposit or not as mentioned in 2 (d) above that borrowing from other company is not deposit.

Confusion is public limited company cannot accept deposits from its members, now can we fall in this exempt category of taking deposit from other company.

 

Thanks

Csjyotika




kundan kumar jha
Account Executive


[ Scorecard : 28]
Posted On 16 August 2012 at 10:42

Dear All,

              If unsecured loan received from director investement in property what about interest capitlil or   revenue expenses for company. please give advice

 




Sukriti Jain


[ Scorecard : 199]
Posted On 23 April 2014 at 16:54

VERY NICE...

 



There are 7 Replies to this message






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