5.acceptance of Deposits by Companies

CHAPTER 5
ACCEPTANCE OF
DEPOSITS BY
COMPANIES
LEARNING OUTCOMES
After studying this unit, you would be able to:
 Understand the meaning of the term ‘Deposit’.
 Know the requirements for and restrictions on acceptance of
deposits from members and public.
 Know about the ‘eligible companies’ which can accept
deposits from public in addition to their members.
 Know the punishment for contravention of the provisions
related to acceptance of deposits by companies.
Acceptance of deposits
Acceptance of
Prohibition on Repayment of
deposits from Punishment
acceptance [Sec. deposits
public [Sec. 76A]
73] [Sec. 74]
[Sec. 76]
© The Institute of Chartered Accountants of India

5.2 CORPORATE AND OTHER LAWS
1. INTRODUCTION
Acceptance of deposits from the members as well as public at large is an important
source of finance for the corporate sector. It is, therefore, necessary to control the
companies which invite deposits in order to safeguard the general and wider
interest of all those persons who offer deposits out of their precious savings. The
statutory provisions as contained in sections 73 to 76A of the Companies Act, 2013
(hereinafter referred to as ‘the Act’) and the Companies (Acceptance of Deposits)
Rules, 2014 (hereinafter referred to as ‘the Rules’) govern the acceptance of
deposits and also renewal thereof.
2. CERTAIN IMPORTANT TERMS EXPLAINED

A. DEPOSIT
Definition: According to section 2 (31) of the Act, the term ‘deposit’

includes any receipt of money by way of deposit or loan or in any
other form, by a company, but does not include such categories of
amount as may be prescribed in consultation with the Reserve bank
of India.
(i) The above definition of ‘deposit’ is inclusive one.
(ii) It includes any money received by way of:
• deposit; or
• loan; or
• in any other form.
(iii) Repayment of ‘deposit’ is time-bound.
(iv) It can be secured or unsecured.
(v) It does not include prescribed categories of amounts (given under the Rules).
(vi) A private company can accept deposits from its members only.
(vii) A public company can accept deposits from its members and also from the
public if it fulfills certain parameters.

ACCEPTANCE OF DEPOSITS BY COMPANIES 5.3
Types of Deposits
Secured deposits
Unsecured deposits
(secured by creating charge
(no security available)
on tangible assets)
B. AMOUNTS NOT CONSIDERED AS DEPOSIT

Following categories of amounts are not considered as deposit [Rule 2 (1) (c)]:
(i) any amount received from the Central Government or a state Government, or
from any other source whose repayment is guaranteed by the Central
Government or a State Government, 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;
(ii) any amount received from foreign Governments, foreign or international
banks, multilateral financial institutions etc. subject to the provisions of
Foreign Exchange Management Act, 1999 and rules and regulations made
thereunder;
(iii) any amount received as a loan or facility from any banking company or from
State Bank of India or its subsidiary banks or from a notified baking institution
or from any co-operative bank;
(iv) any amount received as a loan or financial assistance from Public Financial
Institutions;
(v) any amount received against issue of commercial paper or any other
instruments issued in accordance with the guidelines or notification issued by
the Reserve Bank of India;
(vi) any amount received by a company from any other company;
(vii) any amount received and held pursuant to an offer made in accordance with
the provisions of the Act towards subscription to any securities (including
share application money or advance towards allotment of securities, pending
allotment), so long as such amount is appropriated only against the amount
due on allotment of the securities applied for;
Explanation: (a) It is clarified by way of Explanation that if the securities for
which application money or advance for such securities was received cannot
be allotted within 60 days from the date of receipt of the application money

or advance for such securities and such application money or advance is not
refunded to the subscribers within 15 days from the date of completion of 60
days, such amount shall be treated as a deposit under these rules.
However, unless otherwise required under the Companies Act, 1956 or the
Securities and Exchange Board of India Act, 1992 or rules or regulations made
thereunder to allot any share, stock, bond, or debenture within a specified
period, if a company had received any amount by way of subscriptions to any
shares, stock, bonds or debentures before the 1st April, 2014 and disclosed
in the balance sheet for the financial year ending on or before the 31st March,
2014 against which the allotment is pending on the 31st March, 2015, the
company shall, by the 1st June, 2015, either return such amounts to the
persons from whom these were received or allot shares, stock, bonds or
debentures or comply with these rules.
(b) Further, it is clarified that any adjustment of the amount for any other
purpose shall not be treated as refund.
(viii) 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;
However, the director of the company or relative of the director of the private
company, as the case may be, from whom money is received, is required to
furnish to the company at the time of giving the money, a declaration in writing
to the effect that the amount is not being given out of funds acquired by him
by borrowing or accepting loans or deposits from others and the company shall
disclose the details of money so accepted in the Board's report;
(ix) 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 1 of the Act excluding intangible assets of the
company or bonds or debentures compulsorily convertible into shares of the
company within 10 years;
However, if such bonds or debentures are secured by the charge of any assets
referred to in Schedule III of the Act, excluding intangible assets, the amount
of such bonds or debentures shall not exceed the market value of such assets
as assessed by a registered valuer.
1
Schedule III contains format of Balance Sheet.

(ixa) 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;
Example 1: Soorya Ltd. has raised ` 2,00,000 through 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. The said amount will not be
considered as deposit in terms of the rule stated above [Sub-clause (ixa)]
(x) 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;
Example 2: ` 2,50,000 received from Mr. Raghu, an employee of the company
who is drawing annual salary of ` 2,00,000 under a contract of employment
with the company in the nature of non-interest bearing security deposit. This
amount received by company from employee, Mr. Raghu will be considered
as deposit in terms of sub-clause (x) of the said rule, as amount received is
more than his annual salary under a contract of employment with the
company in the nature of non-interest bearing security deposit.
(xi) any non-interest bearing amount received or held in trust;
(xii) any amount received in the course of, or for the purposes of, the business of
the company–
(a) 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:
However, 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.
(b) as advance, accounted for in any manner whatsoever, received in
connection with consideration for an immovable property under an
agreement or arrangement, provided that such advance is
adjusted against such property in accordance with the terms of
agreement or arrangement;

(c) as security deposit for the performance of the contract for supply of
goods or provision of services;
(d) as advance received under long term projects for supply of capital
goods except those covered under item (b) above;
(e) 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;
(f) as an advance received and as allowed by any sectoral regulator or in
accordance with directions of Central or State Government;
(g) as an advance for subscription towards publication, whether in print or
in electronic to be adjusted against receipt of such publications;
However, it is clarified that if the amount received under items (a), (b) and (d)
above becomes refundable (with or without interest) due to the reasons that
the company accepting the money does not have necessary permission or
approval, wherever required, to deal in the goods or properties or services
for which the money is taken, then the amount received shall be deemed to
be a deposit under these rules.
Further, by way of Explanation it is clarified that for the purposes of this sub-
clause the amount shall be deemed to be deposits on the expiry of fifteen
days from the date they become due for refund.
(xiii) any amount brought in by the promoters of the company by way of
unsecured loan in pursuance of the stipulation of any lending financial
institution or a bank subject to the fulfillment of following conditions:
(a) the loan is brought because of the stipulation imposed by the lending
institutions on the promoters to contribute such finance;
(b) the loan is provided by the promoters themselves or by their relatives
or by both; and
(c) such exemption shall be available only till the loans of financial
institution or bank are repaid and not thereafter.
(xiv) any amount accepted by a Nidhi company in accordance with the rules made
under section 406 of the Act;

(xv) any amount received by way of subscription in respect of a chit under the
Chit Fund Act, 1982;
(xvi) any amount received by the company under any collective investment
scheme in compliance with regulations framed by the Securities and
Exchange Board of India;
(xvii) an amount of twenty-five lakh rupees or more received by a start-up
company, by way of a convertible note (convertible into equity shares or
repayable within a period not exceeding ten years from the date of issue) in
a single tranche, from a person;
By way of Explanation it is clarified that:
1. ‘‘Start-up company” means a private company incorporated under the
Companies Act, 2013 or Companies Act, 1956 and recognised as such
in accordance with Notification Number G.S.R. 127 (E), dated 19-02-
2019 issued by the Department for Promotion of Industry and Internal
Trade ;
2. ‘‘Convertible note” means an instrument evidencing receipt of money
initially as a debt, which is repayable at the option of the holder, or
which is convertible into such number of equity shares of the start-up
company upon occurrence of specified events and as per the other
terms and conditions agreed to and indicated in the instrument.
(xviii) any amount received by a company from Alternate Investment Funds,
Domestic Venture Capital Funds, Infrastructure Investment Trusts, Real Estate
Investment Trusts 2 and Mutual Funds registered with the Securities and
Exchange Board of India in accordance with regulations made by it.
Note: Clarification regarding amounts received by private companies from
their members, directors or their relatives before 1st April, 2014 – whether to
be considered as deposits or not under the Companies Act, 2013 (General
Circular No. 5/2015, dated 30-03-2015)
It is clarified that such amounts received by private companies prior to 1st
April, 2014 shall not be treated as ‘deposits’ subject to the condition that
relevant private company shall disclose in the notes to its financial statement
the figure of such amounts and the accounting head in which such amounts
have been shown.
2
The words ‘Real Estate Investment Trusts’ have been inserted vide the Companies (Acceptance
of Deposits) Amendment Rules, 2019 w.e.f. 22-01-2019.

However, any renewal or acceptance of fresh deposits on or after 1st April, 2014
shall be in accordance with the Companies Act, 2013 and the rules made
thereunder.
C. DEPOSITOR
Definition:
As per Rule 2 (1) (d), the term ‘Depositor’ means:
(i) any member of the company who has made a deposit with
the company in accordance with the provisions of sub-
section (2) of section 73 of the Act, or
(ii) any person who has made a deposit with a public company
in accordance with the provisions of section 76 of the Act.
In other words:
• any member of a private or public company who has deposited money with
his company is a ‘depositor’.
• any person (even if not a member of the company) who has deposited money
with a public company is also a ‘depositor’.
D. ELIGIBLE COMPANY
Definition:
As per Rule 2 (1) (e) the term “eligible company” means a public company as
referred to in section 76 (1), having a net worth of not less than one hundred crore
rupees or a turnover of not less than five hundred crore rupees and which has
obtained the prior consent in general meeting by means of a special resolution and
also filed the said resolution with the Registrar of Companies before making any
invitation to the public for acceptance of deposits:
However, an eligible company, which is accepting deposits within the limits
specified under section 180 (1) (c), may accept deposits by means of an ordinary
resolution.
A public company is ‘eligible’ to accept deposits from the public at large only if it
meets the above-mentioned criteria. Accordingly,
• It should be a public company.
• It should have net worth of minimum ` 100 crores or a turnover of minimum
` 500 crores.

• It has obtained the prior consent by means of a special resolution passed in

general meeting.
• The special resolution has been filed with the Registrar of Companies.
• An ordinary resolution is sufficient if an eligible company is accepting
deposits within the limits specified under section 180 (1) (c).
3. PROHIBITIVE PROVISIONS AND EXEMPTED

COMPANIES
A. Prohibitive Provisions
According to section 73 (1) of the Act, no company can accept or renew deposits
from public unless it follows the manner provided under Chapter V (contains
provisions regarding acceptance of deposits by companies) of the Act for acceptance
or renewal of deposits from public. Manner of acceptance of deposits from public
is explained later in the Chapter.
B. Exempted Companies
Extract of Act:
According to the Section 73 (1), on and after the commencement of this Act, no
company shall invite, accept or renew deposits under this Act from the public
except in a manner provided under this Chapter:
Provided that nothing in this sub-section shall apply to a banking company and
non-banking financial company as defined in the Reserve Bank of India Act, 1934
and to such other company as the Central Government may, after consultation with
the Reserve Bank of India, specify in this behalf.
This brings out the fact that ‘deposit provisions’ as contained in the Companies Act,
2013 are meant to regulate acceptance of deposits by non-banking non-financial
companies (i.e. manufacturing, trading companies, etc.) only.
non- banking financial housing finance

company (NBFC) company (HFC)
other companies as specified by

banking
Exempted the Central Government, in
company
Companies consultation with RBI

4. PROVISIONS REGARDING ACCEPTANCE OF

DEPOSITS FROM MEMBERS
Any company may accept or renew deposits from its members by following the
provisions as set out below:
(1) Passing of a Resolution: A company is required to pass a resolution in
general meeting for acceptance of deposits from its members [Section 73 (2)].
(2) Issuance of a Circular containing Statement: The company is required to
issue 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 the
prescribed form and manner. [Section 73 (2) (a)]
According to Rule 4, the company shall issue such circular to all its members
by registered post with acknowledgement due or speed post or by electronic
mode in Form DPT-1.
Further, the circular may be published in English language in an English
newspaper and in vernacular language in a vernacular newspaper having wide
circulation in the State in which the registered office of the company is situated.
In addition, a certificate of the statutory auditor of the company shall be
attached in Form DPT-1, stating that the company has not committed default
in the repayment of deposits or in the payment of interest on such deposits
accepted either before or after payment of interest on such deposits accepted
either before or after the commencement of the Act. In case a company had
committed a default in the repayment of deposits accepted either before or
after the commencement of the Act or in the payment of interest on such
deposits, a certificate of the statutory auditor of the company shall be
attached in Form DPT-1, stating that the company had made good the default
and a period of five years has lapsed since the date of making good the
default as the case may be.
Such Circular shall be issued on the authority and in the name of Board of
Directors of the company.
The advertisement shall remain valid till the earliest of the following dates:
(a) up to six months from the closure of the financial year in which it is
issued; or

(b) the date on which the financial statements are laid before the company
at the Annual General Meeting (AGM), or in case no AGM has been held,
the latest day on which the AGM should have been held as per the
relevant statutory provisions.
A fresh circular shall be issued, in each succeeding financial year, for inviting
deposits during that financial year.
(3) Filing of Circular: The company is required to file a copy of the circular
containing the statement with the Registrar within 30 days before the date of
issue of the circular. [Section 73 (2) (b)]
(4) Requirement of Deposit Repayment Reserve Account: The company is
required to deposit, on or before 30th of April each year, at least 20% of the
amount of its deposits maturing during the following financial year and kept
in a scheduled bank in a separate bank account to be called deposit
repayment reserve account. [Section 73 (2) (c)]
According to Rule 13 (Maintenance of Liquid Assets and Creation of Deposit
Repayment Reserve Account), every company referred to in sub-section (2)
of section 73 and every eligible company shall on or before the 30th day of
April of each year deposit the sum as specified in clause (c) of the said sub-
section with any scheduled bank and the amount so deposited shall not be
utilised for any purpose other than for the repayment of deposits:
Provided that the amount remaining deposited shall not at any time fall below
twenty per cent. of the amount of deposits maturing during the financial year.
3
(5) Certification as to No default in Repayment: The company needs to certify
that it 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.
In case a default had occurred, the company made good the default and a
period of five years had lapsed since the date of making good the default.
[Section 73 (2) (e)]
(6) Provision of Security: The company may provide security, if any, for the due
repayment of the amount of deposit or the interest thereon. Further, if
security is provided, the company shall take steps for the creation of charge
on the property or assets of the company.
3
Clause (d) relating to ‘deposit insurance’ has been omitted vide the Companies (Amendment)
Act, 2017 w.e.f. 15th August, 2018.

It may be noted that in case a company does not secure the deposits or
secures such deposits partially, then, the deposits shall be termed as
‘‘unsecured deposits’’. Accordingly, it shall be so quoted in every circular,
form, advertisement or in any document related to invitation or acceptance
of deposits. [Section 73 (2) (f)]
Exemption to certain private companies 4:
Clauses (a) to (c) and (e) of sub-section (2) of section 73 with respect to issue of circular,
filing the copy of such circular with the Registrar, depositing of certain amount and
certification as to no default committed, shall not apply to a private company:
(A) which accepts from its members monies not exceeding one hundred
per cent. of aggregate of the paid-up share capital, free reserves and
securities premium account; or
(B) which is a start-up, for five years from the date of its incorporation; or
(C) which fulfils all of the following conditions, namely:
(a) which is not an associate or a subsidiary company of any other
company;
(b) if the borrowings of such a company from banks or financial
institutions or any body corporate is less than twice of its paid-up
share capital or fifty crore rupees, whichever is lower; and
(c) such a company has not defaulted in the repayment of such
borrowings subsisting at the time of accepting deposits under this
section.
However, such a company [as referred to in clauses (A), (B) or (C)] shall file
the details of monies accepted to the Registrar in the specified manner (i.e.
in Form DPT-3).
(7) Repayment of deposit: Every deposit accepted by a company shall be repaid
with interest in accordance with the terms and conditions of the agreement.
[Section 73 (3)]
4
In terms of Notification No. GSR 464 (E), dated 05-06-2015 as amended from time to time.
Further, in terms of Notification No. GSR 8(E), dated 04-01-2017, clauses (a) to (e) of section
73 (2) shall not apply to a Specified IFSC public company which accepts from its members,
monies not exceeding 100% of aggregate of the paid-up share capital and free reserves,
and such company shall file the details of monies so accepted with the Registrar in such
manner as may be specified (i.e. in Form DPT-3).

(8) Application to Tribunal if the Company fails to Repay: In case a company

fails to repay the deposit or part thereof or any interest thereon, the depositor
concerned may apply to the Tribunal 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 the Tribunal may deem fit. [Section
73 (4)]
(9) Using the Amount of Deposit Repayment Reserve Account: The deposit
repayment reserve account shall not be used by the company for any purpose
other than repayment of deposits. [Section 73 (5)]
Rule 13 also states that the amount so deposited in the account shall not be
used by the company for any purpose other than repayment of deposits.
(10) Tenure for which Deposits can be Accepted 5: A company is not permitted
to accept or renew deposits (whether secured or unsecured) which is
repayable on demand or in less than six months. Further, the maximum period
of acceptance of deposit cannot exceed thirty-six months.
Example 3: A, a member of the company has deposited ₹1,00,000 with his
company on 1st April, 2019. The earliest repayment date in this case shall be
30th September, 2019 and the latest repayment date shall be 31st March, 2022.
Thus, the tenure will range between six months and thirty-six months, as per
the policy of the company.
Exception to the rule of tenure of six months: For the purpose of meeting
any of its short-term requirements of funds, a company may accept or renew
deposits for repayment earlier than six months subject to the condition that:
(i) such deposits shall not exceed ten per cent. of the aggregate of
the paid-up share capital, free reserves and securities premium
account of the company; and
(ii) such deposits are repayable only on or after three months from the date
of such deposits or renewal.
(11) Maximum Amount of Deposits from Members 6: A company is permitted
to accept or renew any deposit from its members including other such
deposits outstanding as on the date of acceptance or renewal maximum up
to 35% of the aggregate of its paid-up share capital, free reserves and
securities premium account.
5
As per Rule 3 (1).
6
As per Rule 3 (3).

However, as an exception, a Specified IFSC Public company 7 and a private

company may accept from its members monies not exceeding 100% of
aggregate of the paid-up share capital, free reserves and securities premium
account. Further, such company shall file the details of monies so accepted
with the Registrar in Form DPT-3.
In addition, the maximum limit in respect of deposits to be accepted from
members shall not apply to the following classes of private companies:
(i) a private company which is a start-up, for ten years from the date of its
incorporation;
(ii) a private company which fulfils all of the following conditions, namely:
company;
(b) the borrowings of such a company from banks or financial
institutions or any body-corporate is less than twice of its paid-
up share capital or fifty crore rupees, whichever is less; and
(c) such a company has not defaulted in the repayment of such borrowings
subsisting at the time of accepting deposits under section 73:
Note: It may be noted that all the companies accepting deposits shall
file the details of monies so accepted with the Registrar in Form DPT-3.
(12) Appointment of Trustee for Depositors: As regards appointment of trustee,
refer provisions given under ‘Acceptance of Deposits from Public’ because
same provisions are applicable.
(13) Ceiling on Rate of Interest and Brokerage Payable on Deposits 8 : A
company is permitted to invite or accept or renew any deposit at any rate of
interest or pay any amount of brokerage but in no case, it shall exceed the
maximum rate of interest or brokerage prescribed by the Reserve Bank of
India in case of non-banking financial companies (NBFCs) for acceptance of
deposits.
7
A Specified IFSC Public company means an unlisted public company which is licensed to
operate by the Reserve Bank of India or the Securities and Exchange Board of India or the
Insurance Regulatory and Development Authority of India from the International Financial
Services Centre located in an approved multi services Special Economic Zone set-up under the
Special Economic Zones Act 2005 read with the Special Economic Zones Rules, 2006.
8
As per Rule 3 (6).

Further, no brokerage shall be paid to any person except the person who is
authorised in writing by the company to solicit deposits on its behalf and
through whom deposits are actually procured.
(14) Filling of Application Form for making Deposits 9: A company shall accept
or renew any deposit, whether secured or unsecured, only when an
application, as specified by the company, is submitted by the intending
depositor for the acceptance of deposit.
The application shall contain a declaration made by the intending depositor
to the effect that the deposit is not being made out of any money borrowed
by him from any other person.
(15) Deposits in Joint Names 10: In case the depositors so desire, deposits may
be accepted in joint names not exceeding three. A joint deposit may be
accepted with or without any of the clauses, namely, “Jointly”, “Either or
Survivor”, “First named or Survivor”, “Anyone or Survivor”. These clauses
operate on maturity.
Example 4: A, B and C have jointly deposited ` 1,00,000 in a company.
• In case of ‘Jointly’ clause the repayment of deposit on maturity shall be
made to all the three together i.e. A, B and C or the survivors.
• In case of ‘Either or Survivor’ clause, the repayment of deposit on
maturity shall be made to either of the three i.e. either A or B or C or
the survivor.
• In case of ‘First named or Survivor’ clause, the repayment of deposit on
maturity shall be made to the first named person i.e. A if he is the first
named person or the survivor.
• In case of ‘Anyone or Survivor’ clause, the repayment of deposit on
maturity shall be as in the case of ‘Either or Survivor’.
(16) Nomination 11: Every depositor may nominate any person at any time. The
nominee shall be the person to whom his deposits shall vest in the event of
his death.
(17) Deposit Receipt 12 : Within a period of twenty-one days from the date of
receipt of money or realization of cheque or date of renewal, the company is
9
As per Rule 10.
10
As per Rule 3 (2).
11
As per Rule 11.
12
As per Rule 12.

required to furnish a deposit receipt to the depositor or his agent. The receipt
shall be signed by the duly authorised officer and state the date of deposit,
the name and address of the depositor, the amount of deposit, the rate of
interest and the maturity date.
(18) Register of Deposits 13 : As regards Register of Deposits, refer provisions
given under ‘Acceptance of Deposits from Public’ because same provisions
are applicable.
(19) Premature Repayment of Deposits 14: As regards premature repayment of
deposits, refer provisions given under ‘Acceptance of Deposits from Public’
because same provisions are applicable.
(20) Filing of Return of Deposits with the Registrar 15: A duly audited return of
deposits in DPT-3 (containing particulars as on 31st March of every year) shall
be filed with the Registrar of Companies along with requisite fee on or before
the 30th June of that year.
It is clarified by way of Explanation that DPT-3 shall be used to include
particulars of deposits or particulars of transactions not considered as
deposits or both by every company (other than a Government company).
(21) No Right to Alter 16: The company has no right to alter any of the terms and
conditions of the deposit, deposit trust deed and deposit insurance contract
which may prove detrimental to the interest of the depositors after circular
or circular in the form of advertisement is issued and deposits are accepted.
(22) Disclosures in Financial Statements 17: A public company shall disclose in its
financial statements by way of note about the money received from its
directors. In case of a private company it shall disclose in its financial
statements by way of note about the money received from the directors or
the relatives of directors.
As a onetime measure, every company (other than a Government company)
shall file a onetime return of outstanding receipt of money or loan by a
company not considered as deposits from 1st April 2014 till 31st March, 2019
13
As per Rule 14.
14
As per Rule 15.
15
As per Rule 16.
16
As per Rule 3 (7).
17
As per Rule 16A.

in Form DPT-3 with the Registrar of Companies within ninety days from 31st
March, 2019 along with requisite fee.
(23) Penal Rate of Interest 18: In case the company fails to repay deposits (both
secured and unsecured) on maturity, after they are claimed, it shall pay penal
rate of interest of eighteen per cent per annum for the overdue period.
(24) Punishment for Contravention 19: If any company inviting deposits or any
other person contravenes any of the ‘deposit rules’ for which no punishment
is provided in the Act, the company and every officer-in-default shall be
punishable as under:
• with fine extendable to five thousand rupees; and
• in case the contravention is a continuing one, with a further fine up to
five hundred rupees for every day during which the contravention
continues.
5. PROVISIONS REGARDING ACCEPTANCE OF

DEPOSITS FROM PUBLIC BY ELIGIBLE
COMPANIES
Only ‘eligible companies’ are permitted to accept deposits from the public, in
addition to their members.
It means not all the companies can access the public at large for raising deposits
though they can accept deposits from their members.
Section 76 of the Act and the Companies (Acceptance of Deposits) Rules, 2014 deal
with acceptance of deposits from public by eligible companies.
The acceptance of deposits from public shall be subject to compliance with section
73 (2) and the prescribed rules.
These provisions are stated as under:
(1) Net Worth/Turnover Criterion 20: A public company, having net worth of not
less than one hundred crore rupees or turnover of not less than five hundred crore
rupees, may accept deposits from persons other than its members. Such type of
public company is known as ‘eligible company’.
18
As per Rule 17.
19
As per Rule 21.
20
As per Rule 2 (1) (e).

(2) Passing of Special Resolution 21: The ‘eligible company’ is required to obtain
the prior consent by means of a special resolution in general meeting and also file
the said resolution with the Registrar of Companies before making any invitation
to the public for acceptance of deposits.
However, an ‘eligible company’, which is accepting deposits within the limits
resolution.
(3) Obtaining of Credit Rating 22: The ‘eligible company’ shall be required to
obtain the rating (including its net-worth, liquidity and ability to pay its deposits
on due date) from a recognised credit rating agency. The given rating which
ensures adequate safety shall be informed to the public at the time of invitation of
deposits from the public. Further, the rating shall be obtained every year during the
tenure of deposits.
As per Rule 3 (8), copy of the credit rating which is being obtained at least once in
a year shall be sent to the Registrar of Companies along with the Return of Deposits
in Form DPT-3.
Further, the credit rating shall not be below the minimum investment grade rating
or other specified credit rating for fixed deposits. It shall be obtained from any one
of the approved credit rating agencies as specified for Non-Banking Financial
Companies in the Non-Banking Financial Companies Acceptance of Public Deposits
(Reserve Bank) Directions, 1998, as amended from time to time.
(4) Charge Creation on Assets Necessary if the Deposits are Secured 23: Every
company which accepts secured deposits from the public shall within thirty days of
such acceptance, create a charge on its assets. The amount of charge shall not be
less than the amount of deposits accepted. The charge shall be created in favour
of the deposit holders in accordance with the prescribed rules.
In respect of creation of security, Rule 6 states that the company accepting secured
deposits shall create security by way of charge on its tangible assets only.
The other notable points are:
• The company cannot create charge on intangible assets (i.e. goodwill, trade-
marks, etc.).
21
As per Rule 2 (1) (e).
22
As per first Proviso to section 76 (1).
23
As per second Proviso to section 76 (1).

• Total value of security should not be less than the amount of deposits
accepted and interest payable thereon.
• The market value of assets subject to charge shall be assessed by a registered
valuer.
• The security shall be created in favour of a trustee for the depositors on
specific movable and immovable property of the company.
(5) Tenure for which Deposits can be Accepted 24: A company is not permitted
to accept or renew deposits (whether secured or unsecured) which is repayable on
demand or in less than six months. Further, the maximum period of acceptance of
deposit cannot exceed thirty-six months.
Exception to the rule of tenure of six months: For the purpose of meeting any of its
short-term requirements of funds, a company may accept or renew deposits for
repayment earlier than six months subject to the condition that—
(i) such deposits shall not exceed ten per cent. of the aggregate of the paid-up
share capital, free reserves and securities premium account of the company;
and
(ii) such deposits are repayable only on or after three months from the date of
such deposits or renewal.
(6) Appointment of Trustee for Depositors 25
: Following provisions are
required to be observed in this respect:
• One or more trustees for depositors need to be appointed by the company
for creating security for the deposits.
• A written consent shall be obtained from the trustees before their
appointment.
• A statement shall appear in the circular or advertisement with reasonable
prominence to the effect that the trustees for depositors have given their
consent to the company for such appointment.
• The company shall execute a deposit trust deed in Form DPT-2 at least seven
days before issuing the circular or circular in the form of advertisement.
24
As per Rule 3 (1).
25
As per Rule 7.

• No person including a company that is in the business of providing

trusteeship services shall be appointed as a trustee for the depositors, if the
proposed trustee:
(a) is a director, key managerial personnel or any other officer or an
employee of the company or of its holding, subsidiary or associate
company or a depositor in the company;
(b) is indebted to the company, or its subsidiary or its holding or associate
company or a subsidiary of such holding company;
(c) has any material pecuniary relationship with the company;
(d) has entered into any guarantee arrangement in respect of principal
debts secured by the deposits or interest thereon;
(e) is related to any person specified in clause (a) above.
• No trustee for depositors shall be removed from office after the issue of
circular or advertisement and before the expiry of his term except with the
consent of all the directors present at a meeting of the board. In case the
company is required to have independent directors, at least one independent
director shall be present in such meeting of the Board.
(7) Maximum Amount of Deposits 26 : An eligible company is permitted to
accept or renew deposits as under:
• From its members: The amount of such deposit together with outstanding
deposits from the members as on the date of acceptance or renewal can be
maximum ten per cent. of the aggregate of its paid-up share capital, free
reserves and securities premium account;
• From Persons other than its Members: The amount of such deposit
together with the amount of outstanding deposits (excluding deposits from
members) on the date of acceptance or renewal can be maximum twenty-
five per cent. of the aggregate of its paid-up share capital, free reserves and
securities premium account.
(8) Maximum Amount of Acceptable Deposit in case of an Eligible
Government Company 27: Such a company is permitted to accept or renew any
deposit together with the amount of other outstanding deposits as on the date of
26
As per Rule 3 (4).
27
As per Rule 3 (5).

acceptance or renewal maximum up to thirty-five per cent. of the aggregate of

its paid-up share capital, free reserves and securities premium account.
(9) Issuance of Circular in the Form of Advertisement 28: An ‘eligible company’
intending to invite deposits is required to issue a circular in the form of an
advertisement in DPT-1.
Such advertisement shall be published in English in an English newspaper and in
vernacular language in a vernacular newspaper. Both newspapers should have wide
circulation in the State in which the registered office of the company is situated.
If the company has its website, the circular shall also be placed on the website.
Such advertisement shall be issued on the authority and in the name of Board of
Directors of the company.
• Filing with the Registrar: At least thirty days before the issue of the
advertisement, its copy duly signed by a majority of the directors who
approved the advertisement or otherwise signed by their duly authorised
agents is required to be delivered to the Registrar of Companies for
registration.
• Validity of the Advertisement: The advertisement shall remain valid till the
earliest of the following dates:
(a) up to six months from the closure of the financial year in which it is
issued; or
(b) the date on which the financial statements are laid before the company
at the Annual General Meeting (AGM), or in case no AGM has been held,
the latest day on which the AGM should have been held as per the
relevant statutory provisions.
• Fresh Advertisement: A fresh advertisement shall be issued, in each
succeeding financial year, for inviting deposits during that financial year.
• Issue and Effective dates: The date on which the advertisement appeared in
the newspaper shall be taken as the date of the issue of advertisement.
Further, the effective date of issue of circular shall be the date on which the
circular was dispatched.
(10) Maintenance and Using the Amount of Deposit Repayment Reserve
Account: The company is required to deposit, on or before 30th of April each year,
at least 20% of the amount of its deposits maturing during the following financial
28
As per Rule 4.

year and kept in a scheduled bank in a separate bank account to be called deposit
repayment reserve account. [Section 73 (2) (c)]
Rule 13 states that the amount so deposited in the account shall not be used by
the company for any purpose other than repayment of deposits. Further, it states
that such amount shall not at any time fall below twenty percent of the amount
of deposits maturing during the financial year.
(11) Ceiling on Rate of Interest and Brokerage Payable on Deposits 29 : An
eligible company is permitted to invite or accept or renew any deposit at any rate
of interest or pay any amount of brokerage but in no case, it shall exceed the
maximum rate of interest or brokerage prescribed by the Reserve Bank of India in
case of non-banking financial companies (NBFCs) for acceptance of deposits.
Further, no brokerage shall be paid to any person except the person who is
authorised in writing by the company to solicit deposits on its behalf and through
whom deposits are actually procured.
(12) Filling of Application Form for making Deposits 30: A company shall accept
or renew any deposit, whether secured or unsecured, only when an application, as
specified by the company, is submitted by the intending depositor for the
acceptance of deposit.
The application shall contain a declaration made by the intending depositor to the
effect that the deposit is not being made out of any money borrowed by him from
any other person.
(13) Deposits in Joint Names31: In case the depositors so desire, deposits may
be accepted in joint names not exceeding three. A joint deposit may be accepted
with or without any of the clauses, namely, “Jointly”, “Either or Survivor”, “First
named or Survivor”, “Anyone or Survivor”. These clauses operate on maturity.
(14) Nomination 32 : Every depositor may nominate any person at any time. The
nominee shall be the person to whom his deposits shall vest in the event of his death.
(15) Deposit Receipt33: Within a period of twenty-one days from the date of
receipt of money or realization of cheque or date of renewal, the company is
required to furnish a deposit receipt to the depositor or his agent. The receipt shall
29
As per Rule 3 (6).
30
As per Rule 10.
31
As per Rule 3 (2).
32
As per Rule 11.
33
As per Rule 12.

be signed by the duly authorised officer and state the date of deposit, the name
and address of the depositor, the amount of deposit, the rate of interest and the
maturity date.
(16) Register of Deposits 34:
• Every company accepting deposits shall maintain one or more separate
registers for deposits accepted or renewed at its registered office.
Following particulars shall be entered separately in the case of each
depositor:
(a) name, address and PAN of the depositor/s;
(b) particulars of the guardian, in case of a minor;
(c) particulars of the nominee;
(d) deposit receipt number;
(e) date and the amount of each deposit;
(f) duration of the deposit and the date on which each deposit is repayable;
(g) rate of interest on such deposits to be payable to the depositor;
(h) due date for payment of interest;
(i) mandate and instructions for payment of interest and for non-
deduction of tax at source, if any;
(j) date or dates on which the payment of interest shall be made;
35
(l) particulars of security or charge created for repayment of deposits;
(m) any other relevant particulars.
• The entries shall be made within seven days from the date of issuance of the
receipt duly authenticated by a director or secretary of the company or by
any other officer authorised by the Board for this purpose.
• The said register shall be preserved in good order for a period of not less than
eight years from the financial year in which the latest entry is made in the register.
34
As per Rule 14.
35
Clause (k) relating to details of deposit insurance has been omitted. [Notification No. G.S.R.
612 (E), dated 5th July, 2018]

(17) Premature Repayment of Deposits 36: After the expiry of six months but
before the actual date of maturity, if a depositor requests for premature repayment,
the rate of interest payable shall be one percent less than the rate which would be
payable for the period for which the deposit has actually run.
In this respect it is to be noted that the period for which the deposit has run, if it
contains any part of the year which is less than six months then it shall be excluded;
otherwise if that part is six months or more it shall be taken as one year.
Reduction of rate of interest is not applicable in the following cases:
• Where the deposit is prematurely repaid to comply with Rule 3 i.e. premature
repayment made in order to reduce the total amount of deposits to bring it
within the permissible limits; or
• Where the deposit is prematurely repaid to provide for war risk or other
related benefits to the personnel of naval, military or air forces or to their
families during the period of emergency declared under Article 352 of the
constitution.
(18) Premature Closure of Deposit to Earn Higher Rate of Interest 37: In case a
depositor desires to avail higher rate of interest by renewing the deposit before its
actual maturity date, the company shall pay him the higher rate of interest only if
the deposit is renewed for a period longer than the unexpired period of deposit.
(19) Filing of Return of Deposits with the Registrar 38: A duly audited return of
deposits in DPT-3 (containing particulars as on 31st March of every year) shall be
filed with the Registrar of Companies along with requisite fee on or before the 30th
June of that year.
It is clarified by way of Explanation that DPT-3 shall be used to include particulars
of deposits or particulars of transactions not considered as deposits or both by
every company (other than a Government company).
(20) Disclosures in Financial Statements 39: A public company shall disclose in its
financial statement by way of note about the money received from its directors.
As a onetime measure, every company (other than a Government company) shall
file a onetime return of outstanding receipt of money or loan by a company not
considered as deposits from 1st April 2014 till 31st March, 2019 in Form DPT-3 with
36
As per Rule 15.
37
As per Rule 15 (Second Proviso).
38
As per Rule 16.
39
As per Rule 16A.

the Registrar of Companies within ninety days from 31st March, 2019 along with
requisite fee.
(21) Penal Rate of Interest 40: In case the company fails to repay deposits (both
secured and unsecured) on maturity, after they are claimed, it shall pay penal rate
of interest of eighteen per cent per annum for the overdue period.
(22) No Right to Alter 41: The company has no right to alter any of the terms and
conditions of the deposit, deposit trust deed and deposit insurance contract which
may prove detrimental to the interest of the depositors after circular or circular in
the form of advertisement is issued and deposits are accepted.
(23) Punishment for Contravention 42: If any eligible company inviting deposits
or any other person contravenes any of the ‘deposit rules’ for which no punishment
is provided in the Act, the company and every officer-in-default shall be punishable
as under:
• with fine extendable to five thousand rupees; and
• in case the contravention is a continuing one, with a further fine up to five
hundred rupees for every day during which the contravention continues.
(24) Applicability of Section 73 and 74 to Eligible Companies: As per Rule 19,
pursuant to provisions of sub-section (2) of section 76 of the Act, the provisions of
sections 73 and 74 shall, mutatis mutandis, apply to acceptance of deposits from
public by eligible companies.
Provided further that the fresh deposits by every eligible company shall have to be
in accordance with the provisions of Chapter V of the Act and these rules.
Note: Besides Rule 19, section 76 (2) of the Act states that the provisions of Chapter
V shall, mutatis mutandis, apply to the acceptance of deposits from public under
section 76.
6. PUNISHMENT FOR CONTRAVENTION OF

SECTION 73 OR SECTION 76
According to section 76A of the Act, in case a company accepts or invites or allows
any other person to accept or invite on its behalf any deposit in contravention of
the manner or the conditions prescribed under section 73 or section 76 or rules
40
As per Rule 17.
41
As per Rule 3 (7).
42
As per Rule 21.

made thereunder or if a company fails to repay the deposit or part thereof or any
interest within the time specified under section 73 or section 76 or rules made
thereunder or such further time as may be allowed by the Tribunal under section
73, then the following consequences will follow:
(a) Punishment for the company: The company shall, in addition to the
payment of the amount of deposit or part thereof and the interest due, be
punishable with fine which shall not be less than one crore rupees or twice
the amount of deposit accepted by the company, whichever is lower but
which may extend to ten crore rupees; and
(b) Punishment for officer-in-default: Every officer of the company who is in
default shall be punishable with imprisonment which may extend to seven
years and with fine which shall not be less than twenty-five lakh rupees but
which may extend to two crore rupees.
Further, if it is proved that the officer of the company who is in default, has
contravened such provisions knowingly or wilfully with the intention to
deceive the company or its shareholders or depositors or creditors or tax
authorities, he shall be liable for action under section 447 (Punishment for
fraud).
7. REPAYMENT OF DEPOSITS ACCEPTED

BEFORE COMMENCEMENT OF THE
COMPANIES ACT, 2013
The provisions regarding repayment of deposits accepted before commencement
of the Companies Act, 2013, has been dealt with in section 74. These provisions are
explained as under:
(i) Filing of Statement of Deposits with the Registrar of Companies and
Repayment Thereafter: As per section 74 (1), in case any deposit was
accepted by a company before the commencement of this Act (i.e. before
1.4.2014), and the amount of such deposit or any interest remains unpaid as
on 1.4.2014 or becomes due at any time thereafter, the company shall take
the following steps:
(a) file, within a period of 3 months from such commencement or from the
date on which such payments are due, with the Registrar:
• a statement of all the deposits accepted by the company and
sums remaining unpaid on such amount with the interest payable

thereon along with the arrangements made for such repayment.

This is to be done notwithstanding anything contained in any
other law for the time being in force or under the terms and
conditions subject to which the deposit was accepted or any
scheme framed under any law; and
(b) repay within three years from such commencement or on or before
expiry of the period for which the deposits were accepted, whichever is
earlier.
Note 1: As per Explanation to Rule 19 if the company has been repaying such
deposits and interest thereon without any default on due dates for the
remaining period of such deposit in accordance with the terms and
conditions, point (b) above shall be deemed to have been complied with.
Note 2: It is to be noted that renewal of any such deposits shall be done in
accordance with the provisions of Chapter V and the rules made thereunder.
(ii) Extension of Time for Repayment of Deposits by the Tribunal: As per
section 74 (2), the Tribunal may, on an application made by the company,
after considering the financial condition of the company, the amount of
deposit and the interest payable thereon and such other matters, allow
further time as considered reasonable to the company to repay the deposit.
(iii) Punishment for Non-Repayment of Deposits: As per section 74 (3), if a
company fails to repay the deposit or part thereof or any interest thereon
within the time specified in section 74 (1) or such further extended time
allowed by the Tribunal under section 74 (2), the company shall, in addition
to the payment of the amount of deposit or part thereof and the interest
due, be punishable as under:
• company: with fine minimum of one crore rupees and maximum of ten
crore rupees; and
• every officer-in-default: with imprisonment extendable to seven years
or with fine minimum of twenty-five lakh rupees and maximum of two
crore rupees, or with both.
SUMMARY
 Deposit includes any receipt of money by way of deposit or loan or in any
other form by a company but does not include such categories of amount
prescribed in consultation with RBI.

 Depositor means any member of the company or any other person (not being
a member of the company) who has made a deposit.
 ‘Eligible company’ is the one which can accept deposits both from the public
and its members.
 Section 73 prohibits a company to invite, accept or renew deposits from
public if they are not accepted or renewed in the prescribed manner. This
prohibition however shall not apply in case of certain exempted companies
i.e.:
 banking company;
 non- banking financial company;
 a housing finance company registered with NHB;
 such other company as the Central Government may specify.
 If a company fails to repay the deposit or part thereof or any interest thereon,
the depositor concerned may apply to the Tribunal 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 the Tribunal may
deem fit.
 The deposit repayment reserve account shall not be used by the company for
any purpose other than repayment of deposits.
 In case of secured deposits, the company is required to create security of
equivalent amount by way of charge on its tangible assets.
 A company shall not issue any circular or advertisement for inviting secured
deposits unless it appoints one or more trustees.
 Every company accepting deposits shall maintain at its registered office one
or more separate registers for deposits accepted or renewed.
 A public company shall disclose in its financial statements by way of note
about the money received from its directors.
 A private company shall disclose in its financial statements by way of notes,
about the money received from the directors, or relatives of directors.
 Every company shall pay a penal rate of interest of 18% p.a. for the overdue
period in case of default in repayment.
 The Return of Deposits shall be filed in Form DPT-3 with the Registrar.

 In case of default in repayment, a company is punishable with fine and every

officer-in-default shall be punishable with imprisonment and also fine. In case
of willful default committed with the intention to deceive various
stakeholders, he shall be liable for action under section 447.
TEST YOUR KNOWLEDGE

Question 1
Enumerate the amounts which when received by a company in the ordinary course
of business are not to be considered as deposits.
Answer
According to Rule 2 (1) (c) (xii), following amounts if received by a company in the
course of, or for the purposes of, the business of the company, shall not be
considered as deposits:
(a) any amount received as an advance for the supply of goods or provision of
services accounted for in any manner whatsoever to be appropriated within
a period of three hundred and sixty-five days from the date of acceptance of
such advance:
However, in case any advance is subject matter of any legal proceedings
before any court of law, the time limit of three hundred and sixty-five days
shall not apply.
(b) any amount received as advance in connection with consideration for an
immovable property under an agreement or arrangement. However, such
advance is required to be adjusted against such property in accordance with
the terms of agreement or arrangement;
(c) any amount received as security deposit for the performance of the contract
for supply of goods or provision of services;
(d) any amount received as advance under long term projects for supply of
capital goods except those covered under item (b) above;
(e) any amount received 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;

(f) any amount received as an advance and as allowed by any sectoral regulator
or in accordance with directions of Central or State Government;
(g) any amount received as an advance for subscription towards publication,
whether in print or in electronic to be adjusted against receipt of such
publications;
However, if the amount received under items (a), (b) and (d) above becomes
refundable (with or without interest) due to the reasons that the company
accepting the money does not have necessary permission or approval, wherever
required, to deal in the goods or properties or services for which the money is
taken, then the amount received shall be deemed to be a deposit under these rules.
Further, for the purposes of this sub-clause the amount shall be deemed to be
deposits on the expiry of fifteen days from the date they become due for refund.
Question 2
State the procedure to be followed by companies for acceptance of deposits from its
members according to the Companies Act, 2013. What are the exemptions available
to a private limited company?
Answer
Acceptance of deposits by a company from its members: As per section 73 (2)
of the Companies Act, 2013, 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 Reserve Bank of India, accept deposits from its members on such terms
and conditions, including the provision of security, if any, or for the 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 form and in such manner as may be prescribed;
(b) Filing a copy of the circular along with such statement with the Registrar
within 30 days before the date of issue of the circular;
(c) Depositing, on or before the thirtieth day of April each year, such sum which
shall not be less than twenty per cent of the amount of its deposits maturing
during the following financial year and kept in a scheduled bank in a separate
bank account to be called deposit repayment reserve account;

(d) Omitted
(e) 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 a default had occurred, the
company made good the default and a period of five years had lapsed since
the date of making good the default; and
(f) Providing security, if any for the due repayment of the amount of deposit or
the interest thereon including the creation of such charge on the property or
assets of the company.
Every deposit accepted by a company shall be repaid with interest in accordance
with the terms and conditions of the agreement. Where a company fails to repay
the deposit or part thereof or any interest thereon, the depositor concerned may
apply to the Tribunal 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 the Tribunal may deem fit.
Exemption to certain private companies:
Clauses (a) to (c) and (e) of sub-section (2) of section 73 with respect to issue of
circular, filing the copy of such circular with the Registrar, depositing of certain
amount and certification as to no default committed, shall not apply to a private
company:
(A) which accepts from its members monies not exceeding one hundred per cent
of aggregate of the paid-up share capital, free reserves and securities
premium account; or
(B) which is a start-up, for five years from the date of its incorporation; or
(C) which fulfils all of the following conditions, namely:
company;
(b) if the borrowings of such a company from banks or financial institutions
or any body corporate is less than twice of its paid-up share capital or
fifty crore rupees, whichever is lower; and
(c) such a company has not defaulted in the repayment of such borrowings
subsisting at the time of accepting deposits under this section.

However, such a company [as referred to in clauses (A), (B) or (C)] shall file the
details of monies accepted to the Registrar in the specified manner (i.e. in
Form DPT-3).
Question 3
Explain the provisions for 'Appointment of Trustee for Depositors' under the
Companies Act, 2013 read with the ‘Acceptance of Deposits’ Rules, 2014.
Answer
Appointment of Trustee for Depositors: In this respect following provisions are
required to be observed as mentioned in Rule 7 of the Companies (Acceptance of
Deposits) Rules, 2014:
• One or more trustees for depositors need to be appointed by the company
for creating security for the deposits.
• A written consent shall be obtained from the trustees before their appointment.
• A statement shall appear in the circular or advertisement with reasonable
prominence to the effect that the trustees for depositors have given their
consent to the company for such appointment.
• The company shall execute a deposit trust deed in Form DPT-2 at least seven
days before issuing the circular or circular in the form of advertisement.
• No person including a company that is in the business of providing trusteeship
services shall be appointed as a trustee for the depositors, if the proposed trustee:
(a) is a director, key managerial personnel or any other officer or an
employee of the company or of its holding, subsidiary or associate
company or a depositor in the company;
(b) is indebted to the company, or its subsidiary or its holding or associate
company or a subsidiary of such holding company;
(c) has any material pecuniary relationship with the company;
(d) has entered into any guarantee arrangement in respect of principal
debts secured by the deposits or interest thereon;
(e) is related to any person specified in clause (a) above.
• No trustee for depositors shall be removed from office after the issue of
circular or advertisement and before the expiry of his term except with the
consent of all the directors present at a meeting of the board. In case the

company is required to have independent directors, at least one independent

director shall be present in such meeting of the Board.
Question 4
What are the provisions relating to ‘Credit Rating’ which an ‘eligible company’ must
follow if it wants to raise public deposits?
Answer
The provisions relating to obtaining of ‘Credit Rating’ to be followed by an ‘eligible
company’ are contained in Section 76 (1) of the Companies Act, 2013 and Rule 3
(8) of the Companies (Acceptance of Deposits) Rules, 2014 as amended from time
to time. Accordingly, an ‘eligible company’ which desires to raise public deposits
shall be required to obtain the rating (including its net-worth, liquidity and ability
to pay its deposits on due date) from a recognised credit rating agency. The given
rating which ensures adequate safety shall be informed to the public at the time of
invitation of deposits from the public. Further, the rating shall be obtained every year
during the tenure of deposits.
As per Rule 3 (8), copy of the credit rating which is being obtained at least once in
a year shall be sent to the Registrar of Companies along with the Return of Deposits
in Form DPT-3.
Further, the credit rating shall not be below the minimum investment grade rating
or other specified credit rating for fixed deposits. It shall be obtained from any one
of the approved credit rating agencies as specified for Non-Banking Financial
Companies in the Non-Banking Financial Companies Acceptance of Public Deposits
(Reserve Bank) Directions, 1998, as amended from time to time.
Question 5
Discuss the following situations in the light of ‘deposit provisions’ as contained in the
Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014, as
amended from time to time.
(i) Samit, one of the directors of Zarr Technology Private Limited, a start-up
company, requested his close friend Ritesh to lend to the company ` 30.00 lacs
in a single tranche by way of a convertible note repayable within a period six
years from the date of its issue. Advise whether it is a deposit or not.
(ii) Polestar Traders Limited received a loan of ` 30.00 lacs from Rachna who is
one of its directors. Advise whether it is a deposit or not.

(iii) City Bakers Limited failed to repay deposits of ` 50.00 crores and interest due
thereon even after the extended time granted by the Tribunal. Is the company
or Swati, its officer-in-default, liable to any penalty?
(iv) Shringaar Readymade Garments Limited wants to accept deposits of ` 50.00
lacs from its members for a tenure which is less than six months. Is it a
possibility?
(v) Is it in order for the Diamond Housing Finance Limited to accept and renew
deposits from the public from time to time?
Answer
(i) In terms of Rule 2 (1) (c) (xvii) if a start-up company receives rupees twenty-
five lakh or more by way of a convertible note (convertible into equity shares
or repayable within a period not exceeding ten years from the date of issue)
in a single tranche, from a person, it shall not be treated as deposit.
In the given case, Zarr Technology Private Limited, a start-up company,
received ` 30.00 lacs from Ritesh in a single tranche by way of a convertible
note which is repayable within a period of six years from the date of its issue.
In view of Rule 2 (1) (c) (xvii) which requires a convertible note to be repayable
within a period of ten years from the date of its issue, the amount of ` 30.00
lacs shall not be considered as deposit.
(ii) In terms of Rule 2 (1) (c) (viii), any amount received from a person who is
director of the company at the time of giving loan to the company shall not
be treated as deposit if such director furnishes to the company at the time of
giving money, a written declaration to the effect that the amount is not being
given out of funds acquired by him by borrowing or accepting loans or
deposits from others and further, the company shall disclose the details of
money so accepted in the Board's report.
In the given case, it is assumed that Rachna was one of the directors of
Polestar Traders Limited when the company received a loan of ₹ 30.00 lacs
from her. Further, it is assumed that she had furnished to the company at
time of giving money, a written declaration to the effect that the amount was
not being given out of funds acquired by her by borrowing or accepting loans
or deposits from others and in addition, the company had disclosed the
details of money so accepted in the appropriate Board's report.
If these conditions are satisfied ` 30.00 lacs shall not be treated as deposit.

(iii) By not repaying the deposit of ` 50.00 crores and the interest due thereon
even after the extended time granted by the Tribunal, City Bakers Limited has
contravened the conditions prescribed under Section 73 of the Act.
Accordingly, following penalty is leviable:
• Punishment for the company: City Bakers Limited shall, in addition to
the payment of the amount of deposit and the interest due thereon, be
punishable with fine which shall not be less than rupees one crore or
twice the amount of deposit accepted by the company, whichever is
lower but which may extend to rupees ten crores.
• Punishment for officer-in-default: Swati, being the officer-in-default,
shall be punishable with imprisonment which may extend to seven years
and with fine which shall not be less than rupees twenty-five lakhs but
which may extend to rupees two crores.
Further, if it is proved that Swati had contravened such provisions knowingly
or wilfully with the intention to deceive the company or its shareholders or
depositors or creditors or tax authorities, she will be liable for action
under section 447 (Punishment for fraud).
(iv) According to Rule 3 (1), a company is not permitted to accept or renew deposits
(whether secured or unsecured) which is repayable on demand or in less than six
months. Further, the maximum period of acceptance of deposit cannot exceed thirty
six months.
However, as an exception to this rule, for the purpose of meeting any of its
short-term requirements of funds, a company is permitted to accept or renew
deposits for repayment earlier than six months subject to the conditions that:
(i) such deposits shall not exceed ten per cent. of the aggregate of
the paid-up share capital, free reserves and securities premium
account of the company; and
(ii) such deposits are repayable only on or after three months from the date
of such deposits or renewal.
In the given case of Shringaar Readymade Garments Limited, it wants to
accept deposits of ` 50.00 lacs from its members for a tenure which is less
than six months. It can do so if it justifies that the deposits are required for
the purpose of meeting any of its short-term requirements of funds but in no
case such deposits shall exceed 10% ten per cent of the aggregate of its paid-
up share capital, free reserves and securities premium account and further,

such deposits shall be repayable only on or after three months from the date
of such deposits.
(v) According to section 73 (1) of the Act, no company can accept or renew
deposits from public unless it follows the manner provided under Chapter V
of the Act (contains provisions regarding acceptance of deposits by companies)
for acceptance or renewal of deposits from public. However, Proviso to
Section 73 (1) states that such prohibition with respect to the acceptance or
renewal of deposit from public, inter-alia, shall not apply to a housing finance
company registered with the National Housing Bank established under the
National Housing Bank Act, 1987.
In the given case, it is assumed that Diamond Housing Finance Limited is
registered with the National Housing Bank and therefore the prohibition
contained in section 73 (1) of the Act with respect to the acceptance renewal
of deposit from public shall not apply to it. In other words, it being an
exempted company, can accept deposits from the public from time to time
without following the prescribed manner.
Question 6
ABC Limited having a net worth of ` 120 crores wants to accept deposit from its
members. The directors of the company have approached you to advise them as to
what special care has to be taken while accepting such deposit from the members in
case their company falls within the category of an ‘eligible company’.
Answer
According to section 76 (1) of the Act, an “eligible company” means a public
company, having a net worth of not less than one hundred crore rupees or a
turnover of not less than five hundred crore rupees and which has obtained the
prior consent of the company in general meeting by means of a special resolution
and also filed the said resolution with the Registrar of Companies before making
any invitation to the public for acceptance of deposits.
However, an ‘eligible company’, which is accepting deposits within the limits
resolution.
According to Rule 4 (a), an ‘eligible company’ shall accept or renew any deposit
from its members, if the amount of such deposit together with the amount of
deposits outstanding as on the date of acceptance or renewal of such deposits from
members does not exceed ten per cent. of the aggregate of the paid-up share
capital, free reserves and securities premium account of the company.

ABC Limited is having a net worth of 120 crore rupees. Hence, it falls in the category
of ‘eligible company’.
Thus, ABC Limited has to ensure that acceptance of deposits from its members
together with the amount of deposits outstanding as on the date of acceptance or
renewal of such deposits from the members, in no case, exceeds 10% of the
account of the company.
Question 7
Define the term 'deposit' under the provisions of the Companies Act, 2013 and
comment quoting relevant provisions whether the following amounts received by a
company will be considered as deposits or not:
(i) ` 5,00,000 raised by Rishi Confectionaries Limited through issue of non-
convertible debentures not constituting a charge on the assets of the company
and listed on a recognised stock exchange as per the applicable regulations
made by the Securities and Exchange Board of India.
(ii) ` 2,00,000 received by Raja Yarns Limited from its employee Mr. T, who draws
an annual salary of ` 1,50,000, as a non-interest bearing security deposit under
a contract of employment.
(iii) ` 3,00,000 received by a private company from one of the relatives of a
Director. The said relative has furnished a declaration that the amount was
received by him from his mother as a gift.
Answer
Deposit: According to Section 2 (31) of the Companies Act, 2013, the term ‘deposit’
includes any receipt of money by way of deposit or loan or in any other form, by a
company, but does not include such categories of amount as may be prescribed in
consultation with the Reserve bank of India.
Rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules, 2014 states various
amounts received by a company which will not be considered as deposits. In terms
of this Rule the answers to the given situations shall be as under:
(i) ` 5,00,000 raised by Rishi Confectionaries Limited through issue of non-
convertible debentures not constituting a charge on the assets of the
company and listed on recognised stock exchange as per the applicable
regulations made by the SEBI, will not be considered as deposit in terms of
sub-clause (ixa) of Rule 2 (1) (c).

(ii) ` 2,00,000 received by Raja Yarns Limited from its employee Mr. T, who draws
an annual salary of ` 1,50,000, as a non-interest bearing security deposit
under a contract of employment will be considered as deposit in terms of
sub-clause (x) of Rule 2 (1) (c), for the amount received is more than his annual
salary of ` 1,50,000.
(iii) ` 3,00,000 received by a private company from one of the relatives of a
Director. When the relative furnishes a declaration that the said amount was
received by him from his mother as a gift, then it will not be considered as
deposit in terms of sub-clause (viii) of Rule 2 (1) (c). In fact, the preceding
sub-clause requires that any amount given by a relative of a director of a
private company shall not be considered as deposit if the relative furnishes a
declaration in writing to the effect that the amount is not being given out of
funds acquired by him by borrowing or accepting loans or deposits from
others. Thus, the amount given to the private company out of gifted money
by one of the relatives of a director is not a ‘deposit’.
As an additional requirement, the company shall disclose the details of money
so accepted in the Board’s report.
Question 8
State, with reasons, whether the following statements are ‘True or False’?
(i) ABC Private Limited may accept deposits from its members to the extent of
` 50.00 lakhs, if the aggregate of its paid-up capital, free reserves and security
premium account is ` 50.00 lakhs.
(ii) A Government Company, which is eligible to accept deposits under Section 76
of the Companies Act, 2013, cannot accept deposits from public exceeding 25%
of the aggregate of its paid-up capital, free reserves and security premium
account.
Answer
(i) As per the provisions of Section 73 (2) of the Companies Act, 2013 read with
Rule 3 (3) of the Companies (Acceptance of Deposits) Rules, 2014, as amended
from time to time, a company shall accept any deposit from its members,
together with the amount of other deposits outstanding as on the date of
acceptance of such deposits not exceeding thirty five per cent of the
account of the company. It is provided that a private company may accept
from its members monies not exceeding one hundred per cent of aggregate
of the paid-up share capital, free reserves and securities premium account

and such company shall file the details of monies so accepted to the Registrar
in Form DPT-3.
Therefore, the given statement where ABC Private Limited is accepting
deposits from its members to the extent of ` 50.00 lakh is ‘true’.
(ii) As per Rule 3 (5) of the Companies (Acceptance of Deposits) Rules 2014, a
Government Company is not eligible to accept or renew deposits
under section 76, if the amount of such deposits together with the amount of
other deposits outstanding as on the date of acceptance or renewal exceeds
thirty five per cent of the aggregate of its paid-up share capital, free reserves
and securities premium account.
Therefore, the given statement where the limit of 25% has been stated for
acceptance of deposits is ‘false’.

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CHAPTER 5

© The Institute of Chartered Accountants of India

2. CERTAIN IMPORTANT TERMS EXPLAINED

Definition: According to section 2 (31) of the Act, the term ‘deposit’

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B. AMOUNTS NOT CONSIDERED AS DEPOSIT

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(ixa) any amount raised by issue of non-convertible debenture not constituting a

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

• It has obtained the prior consent by means of a special resolution passed in

3. PROHIBITIVE PROVISIONS AND EXEMPTED

non- banking financial housing finance

other companies as specified by

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4. PROVISIONS REGARDING ACCEPTANCE OF

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© The Institute of Chartered Accountants of India

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(8) Application to Tribunal if the Company fails to Repay: In case a company

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However, as an exception, a Specified IFSC Public company 7 and a private

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

5. PROVISIONS REGARDING ACCEPTANCE OF

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

• No person including a company that is in the business of providing

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acceptance or renewal maximum up to thirty-five per cent. of the aggregate of

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

6. PUNISHMENT FOR CONTRAVENTION OF

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7. REPAYMENT OF DEPOSITS ACCEPTED

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thereon along with the arrangements made for such repayment.

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© The Institute of Chartered Accountants of India

 In case of default in repayment, a company is punishable with fine and every

TEST YOUR KNOWLEDGE

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

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company is required to have independent directors, at least one independent

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India