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Understanding-Company-Deposits-and-Eligible-Entities-4

Acceptance, Repayment, and Registering of Company Deposits under the Companies Act, 2013

In the realm of corporate finance, the acceptance and repayment of deposits constitute a crucial facet, governed by stringent regulations under the Companies Act, 2013 (hereinafter referred to as the “Act”) read with Companies (Acceptance of Deposits) Rules, 2014 (hereinafter referred to as the “Rules”). Understanding these provisions is essential for both companies and depositors to ensure compliance and safeguard interests. Let’s delve into the intricate details of deposit acceptance and repayment as outlined in the Act.

Acceptance Conditions and Regulatory Compliance

According to Section 73(2) of the Act a company can accept deposits from its members subject to certain conditions:

  • Resolution in General Meeting: Acceptance of deposits necessitates the passing of a resolution in a general meeting.
  • Compliance with Rules: The company must adhere to rules prescribed in consultation with the Reserve Bank of India (RBI).
  • Issuance of Circular: Prior to accepting deposits, the company must issue a circular to its members containing specified financial information and particulars.
  • Registrar Notification: A copy of the circular along with relevant statements must be filed with the Registrar within thirty days before issuance.
  • Deposit Repayment Reserve: A portion of deposits must be deposited in a separate bank account termed as the deposit repayment reserve account.
  • Deposit Insurance: Provision of deposit insurance is mandatory as prescribed.
  • No Default Certification: The company must certify non-default in previous deposit repayments.
  • Security Provision: Security provision for repayment, including creating charges on company assets, is imperative.

In cases where deposits are unsecured or partially secured, explicit disclosure is mandated in all related communications.

Repayment Obligations and Legal Recourse

Sections 73(3), 74, and 75 of the Act, collectively establish a framework governing deposit repayment obligation, pre-Act deposits, and liability for fraudulent practices:

Repayment Obligations

  • Section 73(3) mandates that every deposit must be repaid with interest according to agreed terms.
  • Failure to repay deposits or interest invites legal action, with depositors entitled to approach the Tribunal for recourse.

Pre-Act Deposits and Remedial Measures

  • Section 74 deals with deposits accepted before the Act’s commencement. It specifies repayment obligations and timelines, necessitating companies to file statements with the Registrar detailing unpaid deposits and arrangements for repayment.
  • Companies must repay these deposits within one (1) year from the Act’s commencement or from the due date, whichever is earlier. The Tribunal may grant additional time for repayment based on the company’s financial condition.
  • Non-compliance attracts fines and potential imprisonment for defaulting officers.

Liability for Fraudulent Practices

  • Section 75 addresses instances of fraudulent acceptance of deposits. Responsible officers are held personally liable for losses incurred by depositors if deposits were accepted with intent to defraud or for fraudulent purposes.
  • Officers’ liability is without limitation, extending to all or any of the losses or damages incurred by depositors. Affected parties have legal avenues to seek damages or compensation for losses incurred due to non-repayment of deposits or fraudulent practices.

In essence, these provisions form a comprehensive regulatory framework ensuring deposit repayment compliance, providing remedial measures for pre-Act deposits, and imposing strict liability for fraudulent practices, thereby safeguarding depositors’ interests and maintaining financial integrity within the corporate domain.

Regulatory Oversight and Depositor Remedies

Section 76 of the Act enables public companies to accept deposits from non-members, subject to stringent regulations and disclosure requirements. Public companies meeting prescribed net worth or turnover criteria may accept deposits from persons other than members, provided they comply with Section 73(2) of the Act requirements and rules prescribed by the Central Government, in consultation with the Reserve Bank of India. Companies accepting secured deposits must create a charge on their assets within thirty (30) days of acceptance, ensuring the security of deposit holders.

Additionally, under Section 245 of the Act, depositors have recourse to the National Company Law Tribunal  (NCLT) if management’s conduct jeopardizes company or depositor interests. Depositors can file applications before the Tribunal, seeking remedies such as claiming damages, compensation, or other suitable actions against the company or its directors for fraudulent, unlawful, or wrongful acts, the auditor for improper or misleading statements, or any expert, advisor, or consultant for incorrect or misleading statements or fraudulent acts.

Liability extends to audit firms and their partners involved in fraudulent or improper conduct. A requisite number of depositors, not less than one hundred or a prescribed percentage of total depositors, can initiate action before the Tribunal, ensuring effective recourse for aggrieved depositors.

Legal Provisions for Deposit Acceptance and Repayment

Rules under Chapter V of the Act, further elaborate on terms, conditions, and procedural aspects governing deposit acceptance. From eligibility criteria to advertisement formats, these rules provide a comprehensive framework ensuring regulatory compliance and investor protection.

Beyond the aforementioned sections, the Act and its accompanying Rules provide additional legal provisions and guidelines:

  • Rule 3Terms and Conditions: Specifies conditions for deposit acceptance, renewal, and limits on deposit duration.
  • Rule 4Form and Particulars of Advertisements/Circulars: Details requirements for circular issuance, including language, publication, and registration.
  • Rule 5Deposit Insurance: Mandates deposit insurance contracts, including provisions for default scenarios and reimbursement.
  • Rule 6Creation of Security: Outlines requirements for asset-based security creation, valuations, and registered valuers’ roles.
  • Rule 7Appointment of Deposit Trustees: Specifies conditions for appointment, consent, and duties of deposit trustees, ensuring depositor protection.
  • Rule 9Meeting of Depositors through Deposit Trustee: Sets criteria for convening depositor meetings, including requisition and event-triggered meetings.
  • Rule 10 – Form of Application for Deposits: Details requirements for deposit applications, including declarations on the source of funds.
  • Rule 11Nomination: Allows depositors to nominate individuals, akin to provisions in Section 72.
  • Rule 12 – Furnishing of Deposit Receipts: Specifies timelines and content for issuing deposit receipts to depositors.
  • Rule 13 – Maintenance of Liquid Assets and Deposit Repayment Reserve Account: Mandates creation and maintenance of liquid assets and separate accounts for deposit repayments.
  • Rule 14 – Registers of Deposits: Requires companies to maintain detailed registers of deposits accepted, including depositor particulars and terms.
  • Rule 15 – General Provisions Regarding Premature Repayment: Addresses scenarios for premature repayment of deposits and corresponding interest adjustments.

FAQ: Acceptance, Repayment and Registering of Company Deposits under the Companies Act, 2013

  • Why do companies accept deposits?

Companies accept deposits to ensure financial security, build customer trust, and maintain cash flow, all of which are crucial for business growth and success.

  • What are the key changes introduced by the 2020 amendment to the Rules regarding acceptance of deposits?

The 2020 amendment extends the repayment period for deposits to 10 years, allowing start-up companies to accept deposits in the form of convertible notes. Additionally, it permits start-up private companies to accept deposits from members without restrictions for a period of 10 years from the date of incorporation.

  • What is a register of deposits?

A register of deposits, also known as a Deposit Register, is a record containing details such as the names and addresses of depositors, investment periods, repayment terms, and other relevant information.

  • Can a company make premature repayment of a deposit?

Yes, a company can make premature repayment of a deposit after Six (6) months from the expiry of the deposit but before the deposit’s acceptance date. However, this provision does not apply if the repayment is solely to fulfill the terms and conditions specified in the rules.

Conclusion

The intricate regulatory landscape governing deposit acceptance and repayment under the Companies Act, 2013 demands meticulous attention to detail and adherence to stringent guidelines.

InstaFiling acknowledges the challenges inherent in ensuring compliance and offers tailored solutions to streamline corporate processes. Our team of seasoned professionals specializes in guiding businesses through the complexities of regulatory frameworks, ensuring that every aspect of deposit management is handled with precision and expertise. With InstaFiling as your trusted partner, you can confidently navigate the regulatory maze, secure in the knowledge that your corporate endeavours will be met with efficiency and compliance. We understand the multifaceted nature of corporate finance and the significance of regulatory compliance in fostering business growth.

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