Acceptance of Deposits by Companies
Section 73. Prohibition on acceptance of deposits from the public.
73(1).
From the date this Act came into force, no company is allowed to invite, accept, or renew deposits from the public unless it does so strictly in the manner prescribed in this Chapter.
A company cannot freely take money from the public in the form of deposits unless it follows the legal procedure and safeguards provided under the Companies Act, 2013.
However, the following entities are exempt from this restriction:
Banking companies.
Non-Banking Financial Companies (NBFCs), as defined under the Reserve Bank of India Act, 1934.
Any other company that the Central Government may specify in consultation with the Reserve Bank of India (RBI).
So, normal companies are prohibited from accepting public deposits unless allowed by law.
But banks, NBFCs, and any specially notified companies are exceptions because they are already regulated by the RBI.
73(2).
A company may, however, accept deposits from its own members (shareholders) if it meets the following requirements:
Pass a resolution in a general meeting authorising the acceptance of deposits from members.
Follow the rules prescribed by the Central Government, made in consultation with the RBI.
In addition, such acceptance must comply with several specific conditions, which are listed below from (a) to (f):
(a).
The company must issue a circular to its members containing detailed information, such as:
The financial position of the company,
The credit rating obtained from a recognised rating agency,
The total number of depositors and the amount still unpaid from any earlier deposits, and
Any other particulars required by law.
(b).
A copy of this circular, along with the statement of particulars, must be filed with the ROC at least 30 days before the date of issue of the circular.
(c)
Every company accepting deposits must, on or before 30 April each year, deposit:
A sum of not less than 20 percent of the amount of its deposits maturing in the following financial year in a separate bank account.
This account must be opened in a scheduled bank and is called the Deposit Repayment Reserve Account.
(e)
The company must certify that it has not committed any default in repaying any deposit accepted.
This applies whether before or after the commencement of this Act, or in paying interest on such deposits.
If a default had occurred earlier, the company can still accept deposits only if:
It has made good (repaid) the default.
Five years have passed since the date of repayment.
(f)
The company must provide security, if any, for repayment of the deposit and interest, which may include creating a charge on its property or assets.
If the company does not provide full security or provides it only partially, then such deposits shall be treated as Unsecured Deposits.
73(3).
Every deposit accepted by the company under 73(2) must be repaid with interest as per the terms and conditions of the agreement between the company and its members.
73(4).
If a company fails to repay any deposit, part thereof, or the interest due, the depositor can apply to the Tribunal.
The Tribunal may issue an order directing the company to :
Repay the due amount.
Compensate for any loss or damage suffered by the depositor.
Pass any other order it considers appropriate.
73(5).
The money kept in the Deposit Repayment Reserve Account (as mentioned in clause (c)) cannot be used for any other purpose.
It must be utilised only for repaying deposits.
Section 74. Repayment of deposits accepted before commencement of this Act.
74(1).
With respect to deposits that were accepted by a company before the Companies Act, 2013 came into force, i.e., before its commencement date.
If any such deposits (or part of them) remain unpaid at the time the Act starts, or become due for repayment any time after the commencement, the company has certain legal obligations to follow.
The company must:
(a).
Within three months from the commencement of the Act, or within three months from the date when repayment becomes due (whichever applies), the company has to file a detailed statement with the Registrar of Companies (ROC).
This statement must include:
Details of all deposits accepted by the company before commencement,
The amounts still unpaid,
The interest payable on those deposits, and
The arrangements made by the company for repayment.
This filing requirement exists notwithstanding (i.e., despite) anything stated in any other law, agreement, or scheme under which those deposits were originally accepted.
(b).
After filing the statement, the company must repay the deposit and any interest due within three years from the date the Act commenced.
It must also repay before the expiry of the original deposit period, whichever is earlier.
If the company wishes to renew any of these old deposits, it can do so only according to the provisions of Chapter V of the Companies Act, 2013.
74(2).
If a company finds it difficult to repay deposits within the prescribed time, it may apply to the Tribunal (National Company Law Tribunal - NCLT).
The Tribunal, after examining:
The financial condition of the company.
The amount of deposits still unpaid.
The interest payable.
Any other relevant factors may grant the company additional time to repay the deposits.
This extra time is given only if the Tribunal finds the request reasonable and justified.
74(3).
If the company fails to repay the deposit, or any part of it, or the interest due within:
The time specified.
the extended time allowed by the Tribunal, then strict penalties apply.
The consequences are as follows:
The company itself shall be punishable with a fine of not less than ₹1 crore, which may go up to ₹10 crore.
Every officer of the company who is responsible for the default shall be punishable with:
Imprisonment up to 7 years.
Fine of not less than ₹25 lakh and up to ₹2 crore.
Both.
Section 75. Damages for fraud.
75(1).
If a company:
Fails to repay deposits or any part of it.
Fails to pay the interest due thereon.
As required under Section 74 within the time prescribed by law or any extended time allowed by the Tribunal.
In such a situation:
It is proved that the deposits were accepted with the intention to defraud the depositors, or for any fraudulent purpose, then:
Serious personal liability is imposed on the officers responsible.
When such fraudulent intent is established, every officer of the company who was responsible for the acceptance of those deposits shall be:
Personally responsible, without any limitation of liability, for all or any of the losses or damages that the depositors have suffered.
This personal liability is in addition to the company’s liability under Section 74(3) and also under Section 447, which deals with punishment for fraud.
Even if the company is punished under Section 74, the individual officers who acted fraudulently will still face personal, unlimited financial liability and potential criminal prosecution under Section 447 which may involve imprisonment and heavier penalties.
75(2).
There are legal rights to depositors who have suffered because of such fraudulent conduct.
Any person, group of persons, or association of persons who have incurred loss or damage due to the company’s failure to repay the deposit, or part of it, or the interest due, can take legal action against the company or its officers.
Such legal action can be in the form of :
A suit (civil action for damages).
Proceedings before a competent authority.
Any other legal remedy available under law.
Section 76. Acceptance of deposits from public by certain companies.
76(1).
Section 73 allows a company to accept deposits only from its members and Section 76 creates an exception for certain public companies to accept deposits from the general public but only under strict conditions.
Eligibility to Accept Public Deposits
Only a public company that meets certain financial criteria prescribed by the Central Government can accept deposits from persons other than its members.
The eligibility is based on two key financial parameters: (a) Net-worth and (b) Turn-over.
The specific limits for these are prescribed in the Companies (Acceptance of Deposits) Rules, 2014, and can be amended from time to time.
Thus, not every public company can invite deposits from the public & only those financially strong and stable enough are allowed to do so.
Conditions to be Followed
Even an eligible company must comply with:
The same procedural and disclosure requirements as laid down in 76(2) of Section 73.
Any additional rules prescribed by the Central Government, after consulting the Reserve Bank of India (RBI).
Every such public company accepting deposits from the public must obtain a credit rating from a recognised credit rating agency.
This rating should evaluate the company’s: Net worth, Liquidity, and Ability to repay deposits on the due date.
Importantly, the law requires that:
The credit rating be obtained at the time of inviting deposits.
The company must renew the rating every year during the period for which the deposits are held.
If the company accepts secured deposits from the public it must create a charge in favour of the depositors.
The charge must be created within 30 days of accepting the deposits.
The charge must be over the company’s assets (movable or immovable).
The value of the charged assets must be at least equal to the total amount of deposits accepted.
The charge must be created in accordance with the prescribed rules.
76(2).
The provisions of this Chapter shall apply mutatis mutandis to deposits accepted from the public under this section.
Essentially all the rules and safeguards applicable to deposits accepted under Section 73 such as:
Repayment timelines.
Filing requirements.
Penalties for default.
Other procedural obligations.
will also apply to deposits accepted under Section 76, unless specifically altered for public deposits.
76A. Punishment for contravention of section 73 or section 76.
Under circumstances there is violations of the above provisions, there are strict penalties and punishments for companies and their officers that violate the provisions relating to acceptance and repayment of deposits (as laid down under Sections 73 and 76).
It applies in two situations:
1. Contravention of the prescribed manner or conditions:
When a company:
Accepts or invites deposits in a way that is not allowed under Section 73 or 76, or
Causes or allows another person to accept or invite deposits on its behalf, in violation of the prescribed rules.
2. Failure to repay deposits or interest on time:
When a company:
Fails to repay deposits or interest within the time specified under Section 73 or 76 or
Even after the extended time allowed by the Tribunal under Section 73(2).
In either case, both the company and its officers in default are subject to severe penalties.
(a).
If the company commits such a contravention, it faces the following consequences:
It must repay the entire amount of deposit (or part thereof) and any interest due.
In addition to repayment, the company will be punishable with a fine that:
Shall not be less than ₹1 crore or twice the amount of deposits accepted, whichever is lower, and
May extend up to ₹10 crore.
(b).
Every officer of the company who is responsible for such contravention will face:
Imprisonment of up to 7 years, and
Fine of not less than ₹25 lakh, which may extend up to ₹2 crore.
This makes it a serious offence, holding not only the company but also individual officers personally liable.
If it is proved that the officer knowingly or willfully violated the provisions, and did so with an intention to deceive:
The company.
Its shareholders.
Depositors.
Creditors.
Tax authorities.
Then such an officer will face additional punishment under Section 447.
Under Section 447, the penalties include rigorous imprisonment (for 6 months to 10 years) and heavy fines, possibly up to three times the amount involved in the fraud.
