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Deposits under Companies Act

Deposits under companies act, 2013 governed by section 73 to 76. Companies Act regulates the invitation and acceptance of deposits, “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;

Coverage

  • Who is a depositor?
  • What are eligibility criteria of a company to accept deposit?
  • Acceptance of Deposits from Members
  • Acceptance of Deposits from public

 

Who is a depositor?

Any member of the company who has made a deposit with the company in accordance with sub-section (2) of section 73 of the Act, or any person who has made a deposit with a public company in accordance with section 76 of the Act.

 

What are eligibility criteria of a company to accept deposit?

Public can accept deposits by fulfilling below mentioned conditions:

  • Public company having a net worth of minimum of one hundred crore rupees or Turnover of five hundred crore rupees and
  • Prior consent of company in general meeting by means of special resolution and
  • Filed the resolution with the registrar of the companies before making invitation to the public for acceptance of deposits.

Deposits provision are not applicable for following companies:

  1. Banking companies
  2. Non-banking financial company defined in reserve bank of India Act,1934.

 

Acceptance of deposit from public:

A public company may accept deposits from persons other than its members subject to compliance with the requirements provided in sub-section (2) of section 73 and subject to such rules as the Central Government may, in consultation with the Reserve Bank of India, prescribe.

Such a company is required to obtain the rating from a recognized credit rating agency for informing the public. Every company accepting security deposits from public shall within thirty days create a charge on its assets not less than the amount of deposits.

Acceptance of deposits from members:

  • Issuance of a circular to its members including 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.
  • filing a copy of the circular along with such statement with the Registrar within thirty days before the date of issue of the circular.
  • depositing such sum which shall not be less than fifteen per cent of the amount of its deposits maturing during a financial year and the financial year next following, and kept in a scheduled bank in a separate bank account to be called as deposit repayment reserve account.
  • 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.
  • 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. In case when a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as ‘‘unsecured deposits’’ and shall be so quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits.
  • Section 73(3) states that every deposit accepted by a company under sub-section (2) shall be repaid with interest in accordance with the terms and conditions of the agreement referred to in that sub-section.
  • Section 73(4) states that when a company fails to repay the deposit or part thereof or any interest then 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.
  • For the purpose of providing security, every company inviting secured deposits shall provide for security by way of a charge on all its assets excluding intangible assets of the company for due repayment. The security (not being in the nature of a pledge) for deposits as specified in sub-rule (1) shall be created in favour of a trustee for the depositors on specific movable property of the company, or specific immovable property of the company wherever situated, or any interest therein.
  • No company under sub-section (2) of section 73 or any eligible company shall issue circular or advertisement inviting secured deposits unless the company has appointed one or more deposit trustees for creating security for the deposits. A written consent shall be obtained from the deposit trustee(s) before their appointment and a statement shall appear in the circular or circular in the form of advertisement with reasonable prominence to the effect that the deposit trustee(s) have given their consent to the company to be so appointed.
  • The company shall execute a deposit trust deed in Form No. DPT-2 at least 7 days before issuing the circular or circular in the form of advertisement.

 

M/S Helios And Matheson vs The State Rep. By the Deputy

Facts of the case:

  • It appears that the appellant herein was originally incorporated as a Public Limited Company under the name and style of “Express Financial Limited”, having its office at T.Nagar, Chennai. It was incorporated under the Companies Act, 1956 on 8.3.1991. Subsequently, the name of the company was changed to its present form namely “Helios and Matheson Information Technology Limited”, with effect from 29.4.1999.
  • Even according to the appellant, they were accepting deposits from the public as well as the shareholders for over 10 years, in terms of Section 58-A of the Companies Act, 1956 and that they were very prompt in repayment.
  • But after the replacement of The Companies Act, 1956 by the Companies Act, 2013, a new set of provisions from Sections 73 to 76 in Chapter V dealing with “Acceptance of Deposits by Companies” have come into force.
  • Under Section 74(1) of the Companies Act, 2013, every company which has accepted a deposit before the commencement of the 2013 Act, was obliged to file a statement with the Registrar of Companies, if the amount of such deposit or any interest due thereon, remained unpaid on the commencement of the Act. There was also a prohibition under the 2013 Companies Act, for such companies from accepting new deposits, unless two conditions namely (i) shareholders’ approval at an Annual General Meeting and (ii) a credit rating of A++ by CRISIL, are fulfilled.
  • Even according to the appellant, they could not fulfil both the conditions required for acceptance of fresh deposits under the Companies Act, 2013. The appellant was also admittedly in default in repayment of the deposits as well as the interest, to a huge number of depositors, as on the date of commencement of the 2013 Companies Act.
  • The investigation revealed that the appellant was originally incorporated under the Companies Act, 1956 on 8.3.1991 with the name Express Financial Limited. But the name was changed on 29.4.1999 to what it is now. The investigation also revealed that the appellant has 7 subsidiary companies, some of which are also incorporated outside India.As per the statement furnished by the Deputy Superintendent of Police, before the  Judge, the appellant had engaged the services of several finance brokers such as (i) Bajaj Capital; (ii) Karvy Stock Brokering Limited; (iii) Mahavir Group; (iv) Mehta Finance Services Private Limited; (v) Almondz Global Securities Limited; (vi) R.K.Investments; (vii) Samantha Investments; and (viii) Western Securities, for mobilising fixed deposits from the public on commission basis. Through these agents, as well as directly from the public, the appellant had received a total amount of Rs.55,25,70,000/-, as deposits from 6540 depositors all over the country. Once the Economic Offences Wing started investigating, lot of complaints started in. around 745 depositors have given complaints alleging that they have been cheated of Rs.28,29,86,000/-. Many of the depositors are stated to be senior citizens.

Conclusion

The appellant has committed an offence and any interference in the investigation would not be in the interest of more than 6500 depositors and 5 bankers to whom a sum of Rs 5 crores and 189 crore is due. Hence the appeal from from the appellant is dismissed.

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