PROVISIONS RELATED TO DEPOSIT
Sections 58A, 58AA, 58AAA and 58B read with the Companies (Acceptance of Deposits) Rules, 1975 regulate the invitation and acceptance of deposits from public by all companies other than the Non-Banking Financial Companies.
Deposit means any deposit of money with, and includes any amount borrowed by a company but shall not include such categories of amount as may be prescribed in consultation with Reserve Bank of India. Actually, deposit means unsecured borrowing by a company. According to the Companies (Acceptance of Deposit) Rules, 1975 following terms are essential for a deposit:
(a) The deposit shall not be repayable on demand.
(b) The deposit shall be for a fixed period i.e. not less than six months and not exceeding thirty-six months.
(c) The rate of interest shall not exceed the prescribed rates.
(d) Aggregate amount of deposits shall not exceed the limits set in rule 3.
(e) Brokerage can be paid for acceptance of deposits, depending upon the duration of deposit.
(f) The deposit shall be accepted only on an application form provided by the company.
(g) The application form shall contain a statement that the amount being deposited has not been borrowed by the depositor.
(h) The company shall issue a receipt for every deposit accepted by the company.
(i) The company shall maintain a register in respect of every deposit accepted by the company.
(j) The company shall file with the Registrar for return of deposits every year as at 31st March, on or before 30th June.
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.
a. Net Owned Fund Means
Aggregate of the paid up capital and free reserve as disclosed in the latest balance sheet of the company after deducted there from:
1. Accumulated balance of loss.
2. Deferred revenue expenses.
3. Other intangible assets.
b.Further reduced by the amount representing Investment of such company in shares of
1. Its subsidiary.
2. Companies in same group.
3. 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:-
1. Upto 10% of its paid up capital and free reserves from its shareholders (other than shareholders in the private company).
2. 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.
Maintenance of Liquid Assets:
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 stated 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 15% 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:-
a. In current or the deposit account with a scheduled bank free from any charge or lien.
b. In unencumbered securities of Central Government or State Government.
c. In unencumbered bonds issued by HDFC
Under Rule 3(1)(a) a company cannot accept or renew deposit if it is repayable
a. On demand.
b. On notice.
c. Within a period of 6 months.
d. 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.
a. Name and address of the depositor.
b. Date and amount of each deposit.
c. Duration of deposit and the date on which each deposit is repayable.
d. Rate of interest.
e. Date of interest.
f. 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.
Where a company intent to invite deposit from public, it shall first issue an advertisement in a leading English newspaper and also in a vernacular newspaper circulating in the State in which the registered office of the company is situated in the language of that newspaper. The advertisement shall mandatorily contain the following:
1. Name of the Company;
2. Date of Incorporation;
3. Business carried on by the Company and its subsidiaries with details of branches and factories;
4. Particulars of the management of the Company;
5. Names, addresses and occupation of directors;
6. Profits before and after tax for last three financial years preceding the date of advertisement;
7. Dividend declared by the company for last three years;
8. Financial position of the Company from the audited accounts for last two years preceding the date of advertisement.
The advertisement shall also include the statement to the effect that the advertisement is issued on the authority and in the name of the Board of Directors of the Company and indicate the date on which the Board of Directors have approved the text of advertisement.
Manner of Advertisement:
The advertisement proposing to invite deposits containing the required details should be approved by the Board of Directors of the Company before any action is taken alongwith application form and the terms and conditions for acceptance of deposits. Approval regarding arrangements with brokers and bankers shall be taken by the Company as well. The text of advertisement placed before the Board meeting shall be signed by the majority of Directors. Then after it should be filed with ROC in form 62 then after any action regarding publication of advertisement shall be taken.
As per rule 4A, in case the company willing to accept deposits from public but do not intent to invite them, it may not issue an advertisement for that purpose. In that case, the Board of directors of the company shall approve a statement in lieu of the advertisement containing all the particulars which have to be given in the statement in lieu of advertisement alongwith the form of application and file a copy of the same, duly signed by a majority of the directors with the Registrar of Companies with the ROC in e-Form 62. After filing the statement in lieu of the advertisement, the company can accept deposits. It should be noted that all other terms and conditions regarding the duration of the statement, rate of interest, brokerage, etc. will be identical to the terms and conditions of inviting deposits from the public.
Validity period of the advertisement / statement in lieu of advertisement:
The advertisement or the statement issued at any time will be valid only up to expiry of six months from date of closure of financial year in which it is so delivered or until the date on which the balance sheet is laid before the company in general meeting, where the general meeting for that year has not been held, the latest day on which it should be held in accordance with the provisions of the Act, whichever is earlier. In other words, an advertisement will be valid till the expiry of the annual general meeting of the company for that year if held within the prescribed time or ought to have been held so and a fresh advertisement shall have to be made for accepting deposits in each succeeding financial year.
Procedure of Invite Deposit from Public
1. Prepare a text of advertisement and detailed terms and conditions of the acceptance and repayment of deposits including any brokerage, if any and laid it before the Board in duly held Board Meeting and get it approved by signing by the majority of directors present therein.
2. File it with ROC in form 62.
3. Publish the advertisement in one leading English newspaper and one regional language newspaper in regional language.
4. Accept deposit complying the Companies (Acceptance of Deposit) Rules, 1975.
a. Within the limits;
b. Maintain liquid assets;
c. Maintain register of deposit;
d. File return of deposit every year before 30th June and send a copy of the same to RBI.