The Companies Act, 2013 (2013 Act) was assented by the President of India on 29 August 2013 and published in the Official Gazette on 30 August 2013. The New Act is expected to facilitate more business-friendly corporate regulations, improve corporate governance norms, enhance accountability on the part of corporate and auditors, raise levels of transparency and protect interests of investors, particularly small investors.
Companies need more and more funds for expanding their business activities due to competitive business environment, which led them to borrow funds from banks and financial institutions. However sourcing of funds puts the Company under management & control of those financial institutions. The alternative sources of finance available for the Companies are equity and preference shares, debentures and other debt securities etc., this has induced companies to call for deposits from the public. Such deposits are unsecured debts and neither management control nor the formalities of charge on assets are putting any hindrances for availing of such amount.
An attempt has been made for brief analysis of provisions relating to acceptance of deposits by Companies under new Companies Act 2013 read with draft rules framed there under. After the commencement of present Act of 2013, or more correctly, on issue of Notification by Government of India making Section 73 effective; no Company shall invite, accept or renew deposits from the public except in a manner provided under Chapter V of the Act. The chapter V has total four Sections i.e. Section 73 to 76 (both inclusive).
This prohibition does not apply to a banking Company, a non – banking financial Company as well as any other class of Company as specified by the Central government. The Central government may specify any Company after consultation with the Reserve Bank of India.
Governing Laws:
Sections 73 to 76 (both inclusive) read with the Companies (Acceptance of Deposits) Rules, 2013 regulate the invitation, acceptance and repayment of deposits by Companies.
Important definitions:
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Deposit: |
Pursuant to Section 2 (31) “deposit” includes any receipt of money by way of deposit or loan or in any other form by a Company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India. Further the definition of Deposit must be read with Rule 2(b) of Companies (Acceptance of Deposits) Rules, 2013. |
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Depositor: |
Pursuant to Rule 2 (c) of Companies (Acceptance of Deposits) Rules, 2013(draft) Depositor’ means-
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Eligible Company |
Pursuant to Rule 2 (d) of Companies (Acceptance of Deposits) Rules, 2013(draft) Eligible Company” means a public Company as referred to in subSection (1) of Section 76, having a net worth of not less than one hundred Crore rupees or a turnover of not less than five hundred Crore rupees and which has obtained the prior consent of the Company in general meeting by means of a special resolution and also filed the said resolution with the Registrar of Companies and where applicable, with the Reserve Bank of India before making any invitation to the Public for acceptance of Deposits; |
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Trustee |
Pursuant to Rule 2 (e) of Companies (Acceptance of Deposits) Rules, 2013(draft) Trustee means Trustee as defined in Section 3 of the Indian Trusts Act, 1882. |
Highlights in brief.
1. Provision of Section 73 to 76 of the New Act shall come into force from the date of publish in the Gazette Notification.
2. The provisions of the Sections shall not apply to (i) a banking Company and (ii) a non-banking financial Company (as defined in the Reserve Bank of India Act, 1934) registered with the Reserve Bank of India.
3. As per Section 74, any deposit accepted prior to new act and interest due thereon if remains unpaid or becomes due at any time on or after commencement of the new Act, then
- file, within a period of three months from such commencement or from the date on which such payments, are due, with the Registrar 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, and
- Repay within one year from such commencement or from the date on which such payments are due, whichever is earlier. Or {Section 74 (1)(b)}
- Make an application to the Tribunal for allowing further time to the Company to repay the deposit.
4. However as per Rule 30, the provisions of Section 74(1) (b) of the Act shall be deemed to have been be complied, if the Company has had already accepted or invited deposit under the relevant provisions of the Old Act and rules made there under and has been repaying such deposits and interest thereon timely as per the terms and conditions of the Contract. But the provisions of the New Act shall be applicable immediately if the Company fails to repay the deposit and interest due thereon timely.
5. Before any invitation to public for acceptance of deposit take prior consent of the shareholder through a general meeting by means of a special resolution and also file the said resolution with the Registrar of Companies and where applicable, with the Reserve Bank of India.
Limits of acceptance of Deposit:
a. Acceptance/renewal of deposit by Company (other than Eligible Company) in pursuance to Section 73(2) of Companies Act 2013.:-
From the Members shall not exceed 25 per cent of the aggregate of the paid-up share capital and free reserves of the Company. The 25% limit is to be computed considering such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits.
b. Acceptance/renewal of deposit by Eligible Company in pursuance to Section 76.
- From the members shall not exceed 10 per cent of the aggregate of the paid-up share capital and free reserves of the Company. The 10% limit is to be computed considering such deposits together with the amount outstanding from the members on date of acceptance or renewal of such deposits.
- From the Public shall not exceed 25 per cent of the aggregate of the paid-up share capital and free reserves of the Company. The 25% limit is to be computed considering such deposits together with the amount outstanding from the Public on date of acceptance or renewal of such deposits.
c. Acceptance/renewal of deposit by the Government Company in pursuance to Section 76 of Companies Act 2013.
From the Public shall not exceed 35 per cent of the aggregate of the paid-up share capital and free reserves of the Company. The 35% limit is to be computed considering such deposits together with the amount outstanding from the Public on date of acceptance or renewal of such deposits.
Interest and brokerage on deposit:
1. Interest on deposit and payment of brokerage to authorized person shall not exceed the maximum rate prescribed by the Reserve Bank of India.
2. If at any time the Depositor request for repayment after expiry of a period of six months from the date of deposit but before the maturity period, the rate of interest payable by the Company on such deposit shall be reduced by one per cent from the contracted rate.
3. Where a Company permits a depositor to renew his deposit, before the expiry of the contract period, for availing of a higher rate of interest, the Company shall pay interest to such depositor at the higher rate if such deposit is renewed in accordance with the other provisions of these rules and for a period longer than the unexpired period of the deposit.
4. A penal rate of interest of eighteen per cent per annum shall be payable for the overdue period in case of deposits, whether secured or unsecured, matured and claimed but remaining unpaid.
5. Only the authorized person will solicit deposits on behalf of the Company and will be entitled to the brokerage.
Form and particulars of advertisements/circulars.
1. Deposits shall be accepted by issue of Circulars/Advertisements.
2. Every Company (including Eligible Company) intending to invite deposit from its members shall issue a circular to all its members by registered post with acknowledgement due or speed post or by electronic mode or publish the circular in the form of an advertisement in Form No. 1 (English and Vernacular).
3. Every Eligible Company intending to invite deposits from public shall issue an advertisement in Form No. 1 (English and Vernacular).
4. Every Company inviting deposits from the public shall upload a copy of the circular on its website, if any.
5. Before issue of Circular/Form of Advertisement the same should be issued on the authority and in the name of the Board of directors of the Company. In other words the draft Circular/Form of Advertisement should be approved by Board and must be signed by majority of the directors of the Company.
6. At least 30 days before issue of Circular/Form of Advertisement, deliver a copy of Circular/Form of Advertisement approved by Board to the Registrar of Companies for registration.
7. The Circulars/ Form of Advertisement shall be valid until the expiry of six months from the date of closure of the financial year in which it is issued or until the date on which the financial statement is laid before the Company in general meeting or, where the annual general meeting for any year has not been held, the latest day on which that meeting should have been held in accordance with the provisions of the Act, whichever is earlier.
8. Effective date of issue of circular shall be the date of dispatch of the circular but not from the date of Advertisement in news paper.
9. No alternation in the term and conditions of deposit/deposit insurance/deposit trust deed shall be allowed after advertisement/circular is issued and deposits are accepted.
Form of application for deposits and deposit receipt to Depositor.
- Deposit to be accepted only in the prescribed form.
- The application shall contain a declaration from the depositor to the effect that the deposit is not being made out of any money borrowed by him from any other person.
- A depositor may, at any time, make a nomination.
- Deposit receipt shall be issued in the prescribed format and shall be signed by an officer duly authorized by Board, within a period of two weeks from the date of receipt of money or realization of cheques.
Deposit insurance.
- At least 30 days before issue of Circular/Form of Advertisement enter into a contract providing for deposit insurance to cover both principal and interest thereon.
- If the deposit amount is less than Rs.25000/- the insurance coverage will be full amount of deposit amount and if the deposit amount is more than Rs.25000/- then minimum coverage is not less than Rs.25000/-.
- As deposit can be accepted/ matured at regular intervals, the total deposit insurance coverage shall be updated from time to time.
- The Insurance Premium shall be borne by the Company.
- Fresh insurance coverage to be taken if at any time terms and conditions of the deposit insurance contract which makes the insurance cover ineffective.
Creation of security.
- Company inviting secured deposits shall provide for security by way of a charge on its assets as referred to in Schedule III of the Act excluding intangible assets of the Company and the market value of assets charged must be assessed by a registered valuer.
- The security (not being in the nature of a pledge) for deposits shall be created in favor of a trustee for the deposit holders on specific moveable and immovable property of the Company.
Appointment of deposit trustees.
- Before issue of Circular/Form of Advertisement, appoint one or more deposit trustees for creating security for the deposits.
- The Company shall execute a deposit trust deed in Form No. 2 at least 7 days before issuing the circular or circular in the form of advertisement.
- The Circular/Form of Advertisement should contain a statement that the Deposit Trustee(s) have given their consent to act as Deposit Trustee.
- The Deposit trustee (s) shall not be removed from office after the issue of circular or advertisement and before the expiry of his term except with the consent of all the directors present at a meeting of the board.
Maintenance of liquid assets and creation of Deposit Repayment Reserve Account.
- Every Company to create a deposit repayment reserve account and deposit a sum not less than 15% of the deposit amount matured during the current financial year with any schedule bank. The amount deposited shall not at any time fall below fifteen per cent of the amount of deposits maturing until the current financial year and the next financial year.
- The amount deposited in deposit repayment reserve account shall not be utilized for any purpose other than for the repayment of deposits:
Registers /Returns of deposits.
- Make entries in the register (information to be entered as per rules) within seven days from the date of issuance of the deposit receipt and such entries shall be authenticated by a director or secretary of the Company or by any other officer authorized by the Board for this purpose.
- The registers shall be preserved in good order for a period of not less than eight years from the financial year in which the latest entry is made in the register.
- File deposit return in Form No,3 by furnishing information contained therein as on 31st day of March duly audited by auditors before 30th June every year.
Punishment for contravention
Non compliance of provisions, the Company and every officer of the Company who is in default or such other person shall be punishable with fine which may extend to Rs.10000/- and where the contravention is a continuing one, with a further fine which may extend to Rs.1000/-for every day after the first day during which the contravention continues.
Check list for secretarial compliance for acceptance of deposits as per Companies Act 2013:
1. Board to decide the acceptance of deposit and authorize for issue of notice for holding general meeting for obtaining approval of the shareholder.
2. Hold the General Meeting and obtain approval of the shareholder by means of a special resolution.
3. File the said resolution with ROC/RBI as the applicable.
4. Hold Board meeting and obtain the approval of the draft Circular/Form of Advertisement from the Board and ensure that the draft Circular/Form of Advertisement must be signed by majority of the directors of the Company. The Board should also took a note of the following:
- Name of the authorized person, who will solicit deposits on behalf of the Company and rate of brokerage for the services.
- Authorize nominated officer for furnishing deposit receipts.
- Compliance of provision of Deposit insurance.
- Compliance of provision of Creation of security deposit for secured deposit.
- Compliance of provision of Deposit Trustee.
5. Deliver a copy of Circular/Form of Advertisement approved by the Board with the Registrar of Companies for registration.
6. Before issue of Circular/Form of Advertisement, appoint one or more Deposit trustees for creating security for the Secured deposits if any;
7. Execute a Deposit trust deed in Form No. 2 at least 7 days before issuing the circular or circular in the form of advertisement.
8. Enter into a contract providing for deposit insurance at least thirty days before the issue of circular or advertisement with Insurance Company.
9. Obtain the rating (including its net worth, liquidity and ability to pay its deposits on due date) from a recognized credit rating agency for informing the public the rating given to the Company.
10. Issue Circular/Form of advertisement after 30 days from the date of delivery of a copy of Circular/Form of Advertisement with the ROC.
11. The Circular can be issued to members by registered post with acknowledgement due or speed post or by electronic mode or publish the circular in the form of an advertisement in Form No. 1 (English and Vernacular).
12. Upload a copy of the circular on the Company’s website, if any.
13. Ensure that no alternation in the term and conditions of deposit/deposit insurance/deposit trust deed shall be allowed after advertisement/circular is issued and deposits are accepted.
14. Issue deposit receipt in the prescribed format and under the signature of officer duly authorized by Board, within a period of two weeks from the date of receipt of money or realization of cheques.
15. Make entries in the register (information to be entered as per rules) within seven days from the date of issuance of the deposit receipt and such entries shall be authenticated by a director or secretary of the Company or by any other officer authorized by the Board.
16. File deposit return in Form No.3 by furnishing information contained therein as on 31st day of March duly audited by auditors before 30th June every year.
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