Companies Rules - Acceptance of Deposits

The Companies (Acceptance of Deposits) Rules were introduced by the Government of India in 2014 and has been amended from time to time. Initially, the Companies Act, 2013 did not allow the acceptance of deposits. But the later amendments of the company rules eased the acceptance of deposits. This article deals with the Company rules regarding the acceptance of deposits.

Terms and Conditions

The companies under Section 73 of The Companies Act, 2013 is not eligible to accept or renew any of the deposits. It may be a secured or unsecured deposit which is repayable on demand or repayable upon notice within 6 months or more than 36 months from the acceptance or renewal date. However, the company can accept or renew deposits to fulfil the requirements of short term funds. But accepting such deposits pertains to certain conditions. The following are the conditions:

The deposits should not exceed 10% of the company's paid-up free reserves, share capital and securities premium account
Such deposits should be repayable not before 3 months from the date of the deposits or its renewal

The company cannot accept deposits of any form for carrying pay brokerage or rate of interest which the RBI prescribes for accepting deposits by non-banking companies. The company cannot alter the disadvantage or prejudice of the depositor, any conditions of the deposit, the deposit insurance contract and deposit trust deed after the issuance of circular in the form of advertisement. If the depositors desire, then there is an acceptance of deposits in joint names. But it should not exceed more than three either with or without the clauses. The clauses are namely Jointly, First named or Survivor, Either or Survivor or Anyone or Survivor. The company cannot accept or renew the deposits from the members if the amount of this and other deposits is outstanding and exceeds 35% of the company's paid-up free reserves, share capital and securities premium account.

Private Company

Certain IFSC public company and the private company can accept from the members. This should not exceed 100% of the company's paid-up free reserves, share capital and securities premium account. These companies should file the accepted money to the Registrar in Form DPT-3. The acceptance of maximum deposits limit from the members does not apply to the following private company under the company rules:

The company is a start-up for only 5 years
A private company which is not a subsidiary or associate company to any other company
The borrowings of the company from any financial institutes or banks should be twice less than the paid-up share capital or Rs.50 crores, whichever is less
Those companies should not be in default repaying the borrowing while accepting the deposits

These companies should file the accepted money to the Registrar in Form DPT-3.

Government Companies

A Government Company cannot accept deposits. It can accept if the amount of this and other deposits is outstanding and exceeds 35% of the company's paid-up free reserves, share capital and securities premium account.

Credit Rating

Every company can receive a credit rating for the accepted deposits for at least once a year. The company should send a copy of the rating along with the return of deposits to the Registrar in the Form DPT-3. The ranking of credit should not be below the minimum investment grade rating. It should also not be below any other specific credit ratings. This rating should be from any credit rating agency under the Non-banking financial companies. The Form DPT-3 which had to be used by private company and credit rating company can be accessed below: [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2020/03/DPT-3.pdf"]

Advertisement and Circular

The company can invite deposit from its members. This is by issuing a circular or advertisement to all the members. The company issues the circular in Form DPT-1 either by registered post, speed post or electronic mode. In addition to that, the company should publish the circular in the vernacular newspaper in vernacular language. It should also publish in English newspaper in the English language. They should also place the circular on the company's website. The form should contain an attachment of the certificate of the company's statutory auditor. The certificate should state that the company has no default regarding the repayment of accepted deposits or in the payment of interest. In case if the company is at default, then the certificate should state that the company has corrected the default and a there is a lapse of 5 years while correcting the default, whatever the case may be. Form DPT-1 is below for reference: [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2020/03/Form_DPT-1.pdf"]

Issuance of Circular by Another

No person can issue the circular on behalf of the company. Unless it has the name and authority of the company's Board of Directors. The person issuing such circular should deliver it to the Registrar 30 days before issuing it. This is for registration. The majority of the Board should sign the circular and approve it in writing.

Validity

A circular or advertisement is valid until 6 months of the closure of the financial year. Alternatively, it is also valid when the financial statement is brought before the company in the Annual General Meeting (AGM). If there is no AGM, then the latest date of the said meeting can be taken into account. There will be a new circular in each financial year for inviting the deposits.

Creation of Security

The company can provide security by charging on the assets as under the Schedule III of The Companies Act, 2013. It excludes the intangible assets that are due repayment of the deposit or interest amount. This should not be lesser than the remaining unsecured amount. However, the secured deposit amount and interest payable should not exceed the market value of the assets. The security for the deposits will be in favour of the trustees for the depositors. The favour will be on the specific movable or immovable property of the company. The schedule III is below for reference: [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2020/03/1CompaniesAct2013.pdf"]

Appointment of Trustee for Depositors

Unless the company has one or more trustees, it cannot issue an advertisement or circular. The company should put the deposit trust deed in Form DPT-2 at least 7 days before issuing the circular. The Form DPT-2 is below for reference: [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2020/03/Form_DPT-2.pdf"]

Non-applicability of the Trustee

A person cannot be a trustee for the following reasons:

Director, managerial personnel, employee or other officers of the company, its subsidiary, holding or associate company. If he is related to any of this person
Depositor of the company or related to the depositor
Indebted to the company, its subsidiary, holding or associate company
Money related relationship with the company
Has Guarantee arrangement relating to the secured principal debts by the interest or deposits

The removal of a trustee cannot take place before the expiry of his term. Unless all the directors of the board give consent to it. However, if the company has an independent director, then at least one of them must be present.

Duties of a Trustee

The following are the duties of a trustee for the depositors in the company rules of the acceptance of deposits:

Ensure that the assets of the company and the deposit insurance amount are sufficient for repaying the outstanding secured deposits and the interest
Verify that the circular is consistent with the deposit scheme or with the trust deeds. They should also verify if it obliges to these rules and the Companies Act
Check that there is no breach of covenant and also of provisions of the trust deed. Be on guard if any such situation arises
Take the initiative to call for a meeting for the depositor holders in the time of need
Monitor the creation of security for the deposits and also the terms of the deposit insurance
Perform necessary acts when the security becomes enforceable
Carry out actions that are necessary for protecting the interest of the depositors

Meeting of Depositors

If one-tenth of the depositors of value request for a meeting, then the trustee can call for a meeting. Due to certain events if there is any default which affects the interest of the depositors, then the trustee can call for a meeting.

Form of Application of Deposits

The company has to submit an application to the intended depositors regarding the acceptance of the deposits. Only after that the company can accept or renew the deposits. The application should have a declaration of the intended depositor. This should state that the deposit amount is not a borrowed money.

Power to Nominate

The depositor can nominate any person who can hold his deposits after his death.

Furnishing Deposit Receipts to Depositors

The company must give the depositors regarding the amount received as a deposit. This should be done within 21 days from the realisation of cheque, date of the receipt of the money or the date of renewal. An officer of the company has to sign the receipts. The board should also authorise it. The receipt should contain the deposit date, depositor's name and address, the amount which the company receives as a deposit, the rate of interest that is payable and the date in which the deposit is repayable.

Maintenance of Liquid Assets and the Creation of Deposit Repayment Reserve Account

Every eligible company has to deposit the sum before the 30th of April of every year. They should deposit in any of the scheduled banks. The deposited money is only to repay the deposits. However, the remaining amount deposited should not go below 20% of the deposits that are maturing in the financial year.

Registers of Deposits

The company accepting deposits will maintain registers. The following are the necessary particulars in the register according to the company rules of acceptance of deposits:

Depositors' name, address and PAN
Details of guardian in the case of a minor
Details of nominee
The receipt number of the deposit
Date and amount of every deposit
The duration of the deposit and the date on which the deposit is repayable
Rate of interest of the payable deposits
Instruction and mandate regarding the payment of interest and non-deduction of tax at source
The date for the payment of interest
Details of the security or charge for the repayment of the deposits

The company should enter these details within 7 days of issuing the receipts. The company must preserve the register at least for 8 years.

Filing of Return of Deposits

The company should file the return of deposits in Form DPT-3 with the Registrar. This should take place before the 30th of June. They should submit along with fees as under the Companies (Registration Offices and Fees) Rules, 2014. The auditor should audit the information in it.

Disclosure in Financial Statement

Except for the private company, every company must disclose financial statements. They should disclose it in notes regarding the amount received from the director. The private company will disclose the financial statements in notes regarding the amount received from the director or the relatives of the director. Except for the Government company, every company has to file a one time return. This is for the outstanding receipt of money or loan of the company. They should file it 90 days before the 31st of March.

Other Provisions of the Rule

In the case of deposits, every company has to pay a penal rate of interest for the overdue period, which is of 18% per annum. The Government, after consultation with the Reserve Bank, will clarify the queries regarding these rules. If the company or any person is at default regarding these rules, then they will be punishable. They will have to pay an amount of Rs.5,000 as a fine. If they continue to contravene, then they are liable to pay Rs.500 per day.

Premature Repayment of Deposits

There is a reduction of 1% in the rate of interest payable for certain deposits. Such is when the company makes a repayment of the deposit after the 6 months of expiry of the deposits but before the expiry of the acceptance date of the deposit. But this is not applicable if the repayment is solely to comply with the terms and conditions of these rules. This is also not applicable to the application that was made during the period of emergency. However, if the company allows the depositor to renew the deposits before the expiry to avail at a higher interest, then the company should pay the interest at a higher rate if the depositor renews the deposit in accordance with these rules for longer than the unexpired period.