Company Deposits

Section 2 (31) of Companies Act and Rule 2(1)(v) DEFINITION OF DEPOSIT ‘Deposit’ includes any receipt of money by way of deposit or loan or in any other form, by a company But does not include;

• Any amount received from the CG or a SG, or any amount received from any other source whose repayment is guaranteed by the CG or a SG, or any amount received from a local authority, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature;
• Any amount received from Foreign Governments, foreign or international banks,multilateral financial institutions, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of Foreign Exchange Management Act, 1999 (42 of 1999) and rules and regulations made there under;
• Any amount received as a loan or facility from any Bank or FI;
• Any amount received as a loan or financial assistance from Public Financial Institutions notified by the Central Government in this behalf in consultation with the Reserve Bank of India or any regional financial institutions or Insurance Companies or Scheduled Banks as defined in the Reserve Bank of India Act, 1934
• Any amount received against issue of commercial paper or any other instruments issued under guidelines or notification issued by RBI;

• Any amount received by a company from any other company (Inter-corporate Deposits);
• Any amount received towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, provided that securities are allotted within 60 days from the date of receipt of money failing which, money should be refunded within 15 days after the expiry of 60 days, otherwise it shall be treated as deposit;
• Any amount received from a person who, at the time of the receipt of the amount, was a director of the company or a relative of the director of the Private company, provided it is not being given out of borrowed funds;
• Any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within ten years, provided the amount of borrowing is not more than the market value of such assets assessed by a registered value;
• Any amount raised by issue of non-convertible debenture not constituting a charge on the assets of the company and listed on a recognised stock exchange as per applicable regulations made by Securities and Exchange Board of India
• Any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest bearing security deposit;
• Any non-interest bearing amount received or held in trust;
• Any amount received in the course of, or for the purposes of the business of the company, such as an advance for the supply of goods or provision of services accounted for in any manner whatsoever provided that such advance is appropriated against supply of goods or provision of services within a period of three hundred and sixty five days from the date of acceptance of such advance:

Provided that in case of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of three hundred and sixty five days shall not apply;

• Any amount received in the course of, or for the purposes of the business of the company which are as follows:

1. as a advance, accounted for in any manner whatsoever, received in connection with consideration for an immovable property
2. as a security deposit for the performance of the contract for supply of goods or provision of services for supply of capital goods
3. as an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement, if the period for providing such services does not exceed the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less;
4. as an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government;
5. as an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications

Provided that if the aforesaid amount becomes refundable on account of not getting the requisite approval/permission, then the money should be refunded within 15 days from the date it becomes due for refund, otherwise it shall be treated as deposit;

• Any amount brought in by the promoters of the company by way of unsecured loan subject to fulfilment of the following conditions, namely:-

a)The loan is brought in pursuance of the stipulation imposed by the lending FI or bank on the promoters to contribute such finance;

b) The loan is provided by the promoters themselves or by their relatives or by both and not by their friends and business associates; and

c) The exemption shall be available only till the loans of financial institution or bank are repaid and not thereafter.

DEPOSITOR RULE 2 (1) (d):

-Any member of the company who has made a deposit with the company u/s 73 of the Companies Act; or

-Any person who has made a deposit with an eligible company u/s 76 of the Companies Act.

ELIGIBLE COMPANY: RULE 2(1)(e)

-A Public company having a net worth of not less than Rs. 100 Cr. or a turnover of not less than Rs. 500 Cr. and which has obtained the prior consent of the company in General Meeting  by means of a Sepcial Resolution and filed the said resolution with the ROC and where applicable, with the RBI before making any invitation to the public for acceptance of Deposits;

Provided that an eligible company, which is accepting deposits within the limits specified u/s 180(1)(c), may accept deposits by means of an ordinary resolution.

KINDS OF DEPOSITS:

1. Acceptance of deposit from Members: Any company (whether private or public) can accept deposits from its members, subject to the passing of a resolution in general meeting and the commencement of this Act or payment of interest on such deposits. [Section 73].
2. Acceptance of deposits from the Public: Only a public company, having a net worth of not less than Rs. 100 Cr. OR a turnover of not less than Rs. 500 Cr., can accept deposits from the Public. Such kind of public company, shall be referred to as ‘Eligible Company.

SECTION 73 PROHIBITION ON ACCEPTANCE OF DEPOSIT FROM PUBLIC:

(1) No company shall invite, accept or renew deposits under this Act from the public except in a manner provided under Chapter V. Exceptions:

-A banking company

-Non-banking financial company as defined in RBI Act, 1934 and

-To such other company as the CG may, after consultation with the Reserve Bank of India, specify in this behalf.

(2) Section 73(2) states that a company may, subject to

-The passing of a resolution in General Meeting and

-Subject to such rules as may be prescribed in consultation with the RBI, accept the deposits from its members on such terms and conditions, including the provisions of security, if any, on such repayment of such deposits with interest , as may be agreed upon between the company and its members, Subject to the fulfilment of the following conditions, namely

 a)Issuance of a circular to its members including therein a statement showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in such manner as may be prescribed.

1. b) Filing a copy of the circular along with such statement with the ROC 30 days before the date of issue of the circular;
2. c) Depositing sum not less than 20% of the amount of its deposits maturing during a FY and the FY next following, and kept in a scheduled bank in a separate bank account to be called as Deposit Repayment Reserve Account;
3. d) Certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this act or payment of interest on such deposits and where such default has occurred, the company made good the default and a period of 5 years had lapsed since the date of making good the default.
4. e) Providing security, if any for the due repayment of the amount of deposit or the interest thereon including the creation if such charge on the property or assets of the company. In case when a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as “unsecured Deposits” and shall be so quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits.

(3) Section 73(3) states that every deposit accepted by a company shall be repaid with interest as per terms and conditions of the agreement.

(4) Section 73(4) If a company fails to repay the deposit or part thereof or any interest thereon, the depositor concerned may apply to NCLT for an order directing the company to pay the sum due or for any loss or damage incurred by him as a result of such non-payment and for such other orders as NCLT may deem fit.

(5) Section 73(5) The deposit repayment reserve account shall not be used by the company for any purpose other than repayment of deposits.