After the commencement of present Act of 2013, or more correctly, on issue of Notification by Government of India making Section 73 effective; no company shall invite, accept or renew deposits from the public except in a manner provided under Chapter V of the Act. The chapter V has total four Sections i.e. Section 73 to 76 (both inclusive).
This prohibition does not apply to a banking company, a non – banking financial company as well as any other class of company as specified by the Central government. The Central government may specify any company after consultation with the Reserve Bank of India.
DEPOSIT FROM MEMBERS (SECTION 73):
A company may after passing a resolution in general meeting accept deposit from its members subject to agreed terms and conditions and on following conditions, namely: —
(a) Issue of a circular to its members, which includes statement of financial position, credit rating, total number of depositors, amount due and other prescribed particulars;
(b) Filing a copy of the circular along with statement with the Registrar within thirty days before the issue of the circular;
(c) Depositing and kept a sum not less than fifteen percent of the amount of its deposits maturing during the current and next following financial year in a schedule bank in a separate bank account to be called as deposit repayment reserve account;
(d) Providing a deposit insurance as prescribed;
(e) Certifying that the company has not committed any default in repayment of deposits accepted before or after the commencement of this Act or payment of interest on such deposit; and
(f) Providing security including the creation of charge on the property or assets of the company. However security is not required where deposit is termed as “unsecured deposits” in every circular, form, advertisement and other documents.
Every deposit accepted by the 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 any loss or damage incurred by him as a result of such non – payment and such other order as the tribunal may deem fit.
The deposit repayment reserve account (DRRA) shall be utilised by the company for repayment of deposits.
DEPOSIT FROM PUBLIC (SECTION 76):
A public company, with a specified net worth or turnover, may accept deposits from persons other than its members. The company shall make compliance of requirements of Section 73, this chapter and any rule made by the government for this purpose.
Every company accepting secured deposits from the public shall within thirty days of such acceptance, create a charge on its assets of an amount not less than the amount of deposits accepted in favour of the deposit holders in accordance with such rules as may be prescribed.
REPAYMENT OF DEPOSITS ACCEPTED UNDER OLD ACT (SECTION 74):
In case company has accepted any deposit and any such deposit or its part or any interest thereon is due at the time when this Section come into force, the company shall –
(a) File a statement of all deposits and sum remaining unpaid with interest payable thereon, arrangement for repayment with the Registrar within three months from the date of commencement of this provision or from the date on which such deposit become due; and
(b) Repay within one year all such sums from commencement of this provision or form the date on which such payment become due.
However, the Tribunal (NCLT) may, on application made by the company, allow further time as considered reasonable to the company to repay the deposit. The tribunal shall consider financial position of the company, amount of deposit and the interest thereon.
Any failure on part of company within specified time or such further time shall be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees and every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both.
DAMAGES FOR FRAUD (SECTION 75)
Any person, group of person or any association of persons (that means anyone) who has incurred any loss as a result of the failure of the company to repay the deposit or part thereof or any interest thereon may initiate a suit, proceedings or any other suitable action against the company and every officer of the company.
This recourse is available to against the company in addition to recourse available under Section 74.
If, it is proved that the deposits had been accepted with intent to defraud the depositors or for any fraudulent purpose, every officer of the company who was responsible for the acceptance of such deposit shall be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by the depositors.
This is also clear from this Section, the company and every officer of the company shall also be liable for punishment for fraud under Section 447 of the Act.
This is very stringent punishment in case of fraudulent failure to repay the deposit or interest. There is provision for imprisonment for up to seven year under Section 74 and up to ten year under Section 447. Financial penalty goes as high as two crore rupees under Section 74, unlimited amount of loss or damages under Section 75 and any amount up to three times of amount involved in fraud. Most important thing is any person suffering from loss may file complaint.
Please note: I welcome your comments and feedback. This blog post is not a professional advice. Readers may share this post on social media by using buttons given here.
Your articles are very articulate and precise Mr. Gahrana. Thank You
Thank You, Preeti Ji.
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is this applicable to private companies
Private companies may accept deposit from Members under Section 73.
Private companies by virtue of its Articles, may not accept deposit form public. Therefore, Section 76 may not be applicable to private companies.
Hi,your article is really helpful and considerably good.
can u throw light on compulsory requirement of credit ratting for acceptance of deposit from members by a private company? from Section 73[a] it seems so.
Sure, very soon. i will write a post in near future.
hello sir, i have a doubt.
1) Can a private limited company still accept deposits from its shareholders?
2) Do the earlier deposits taken from the shareholders have to be returned?
3) Can the company accept zero interest deposit from its shareholder?
4) How much can a shareholder advance deposit to the company in a year or in its entire operation
what “doubt” there?
Tell me, I will focus on doubt.
Sir sorry i forgot to say thank you earlier….
I had asked questions citing that does section 73 applies to private limited company? if that is the case that means all prior deposits taken from the members ie shareholders will have to be returned?
Plz correct if this is wrong.
Thank you once again
Section 73 and 74 applies on all companies including the private companies. All exemptions shall be in accordance with Provisio to sub – section (1) of Section 73.
My dad has put some money in 4 different family members names in 2012. This Company I understand is defaulting in payment of interest and pincipal. My question is:
1.. Micro Tehnologies (India) Ltd is a public Ltd company. So would deposits taken prior to 2013 also come under the new SEc73,74,75.
2.. How should I ask him to go about protecting his interest
3.. Through your blog can you please spread message to depositers like him to take immediate steps for safeguarding interests
Please, do not rush into any conclusion.
Section 74(1)(a) simply asks details of all deposits taken by a company within three month from the commencement of this section. The company shall file a statement containing all details within three month from the date of commencement of sub – section (1) of Section 74. This sub – section come into force on 1st day of April 2014 and the time period run up to 30th day of June 2014. Once, company file such a document, any person can check all details online on payment of nominal fee being a public document. Hope, name of all depositors will be there without any fail.
Section 74(1)(b) adds that the company shall repay this amount on due date or within one year from the commencement of this provision, whichever is earlier. The period end on 31st March 2015. Hope, all depositors shall get their repayment on or before that date.
Any depositor can check due date on deposit receipt issued by the company.
I will surely write a post but this blog cannot replace a professional service.
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Very nice and crisp writing.
But if you can make it more eloborate i.e.all deposits accepted under old law and not permitted under new law NEED BE REPAID within 1 year or so shall make it more clear put many questions at rest .
Best wishes for your effort.
Dear Sir ,
As you go through the rule of deposit can any company take deposit for any no or any specific limits ? if the limits is cross then what action have to be taken by company ?
what is provision of renewal of deposit and also provide check list for the same..
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Can a Private Company Accept Deposit From A director who is also A Member? Because the the money provided by directors is not treated as Deposit. so what law says if that person is member also?
thanks and Regards
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CAN A PUBLIC COMPANY ACCEPT UNSECURED LOANS FROM ITS MEMBERS AS PER COMPANIES ACT,2013? IF YES,WHAT ARE THE COMPLIANCES?
In case of small company, can a director who is also a shareholder give loan to the company?
yes he can, co can accept loan from directores and thi is an exemped deposit
Can a pvt ltd co. accept security or guarantee (i.e., by mortgaging the property of director’s relatives) for taking loan (term loan or cash credit) from bank?
As i understand, No.
CAN UNSECURED LOAN TAKEN BEFORE 1.4.2014 WILL COVERD AS DEPOSITS UNDER NEW SECTION 73AND SHOULD THE COMPANY SHALL FILE dpt-4 FOR SUCH UNSECURED LOAN TAKEN FROM OTHER PAS EXCEPT DIECTORS
Return is required to be filed in DPT – 4, as these deposits are legally and still a deposits.
No matter, whether any such deposit is deposit under New Section 73 of CA2013.
As per section 73 of companies act 2013, director gives loan to public company from arranging another company and make false declaration as required in the aforsaid section i.e. loan from personal source so please suggest whether there is any violation or not…..
Do you think it is not? or is it?
Can a private company accept deposit / loan from a director who is also member without complying with the provisions of Section 73 of the Companies Act, 2013 as any amount received from a director is excluded from the definition of public deposit under the Companies (Acceptance of Deposits) Rules, 2014?
yes deposits from director is an exempted deposit and will not be treated as a public deposit, some changes were proposed from small private companies with less than 50 shareholders regarding the deposit from members subject to fulfillign certain conditions, i am not aware of the fate of the amendment to the rules .
Rules related to Private Companies are placed before Parliament for 30 clear working days.
Presently 6-7 clear working days are remaining. We have to wait for Winter Session.
Your article is helpful…
Please guide who are the insurers who do the “Deposit Insurance”.
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ARTICLE VERY INFORMATIVE. STILL UNCLEAR WHETHER PRIVATE COMPANY CAN AVAIL UNSECURED INTEREST-FREE LOANS FROM MEMBERS?
1. Loan and Deposit are different in Law. Deposits are payable within a period and Loan are payable after a period. Yes, definition of deposit under the Companies Act 2013 has authority on definition of Deposit under this Act.
Section 73 of the Act permit “a company” which include a private company to accept deposit for members.
The Section give freedom regarding rate of interest but surely go for zero interest rate rather interest free.
Sir, Kindly confirm me whether in a Pvt Ltd Company money received from its Director (Prop) in firm and his HUF is treated as Deposit or not.
Sir can company accept deposit upto 25% without the compliance or it is like that company can not accept even a single rupee..?
A rupee has 100 paise. Do not accept even a single paisa without compliance.
Yes, company may accept money without compliance, subject to legal consequences.
DPT4 FILED IN JUNE2014, BUT PVT LTD COMAPNY COULD REPAY ONLY PART OF THE LOAN FROM SHARE COULDERS, ALSO REALTIVES OF DIRECTORS BEFORE 31.03.2015, BALANCE ITS UNABLE TO REPAY, SHOULD WE APPLY TO NCLT? or FILE DPT4 OR DPT3 KINLY ADVICE
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