Acceptance of Deposits by Companies, Meaning and Provisions

The Acceptance of Deposits plays a crucial role in corporate financing, enabling companies to raise funds from members and the public under the regulatory framework of the Companies Act, 2013. However, to protect stakeholders, strict rules and compliance measures are in place. 

Understanding these regulations is essential for CA Exams, as CA frequently deals with corporate finance, compliance, and auditing aspects in their professional journey.

What Is Acceptance of Deposits?

The Acceptance of Deposits refers to any amount received by a company, whether as a loan or deposit, excluding specific exempted categories. The provisions governing deposits fall under Sections 73 to 76 of the Companies Act, 2013, along with prescribed rules. Companies must ensure compliance with these laws to avoid penalties and legal consequences.

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What Qualifies as a Deposit?

As per the Act, any sum received by a company is considered a deposit unless it falls into one of the exemptions. Exemptions include:

• Funds received from the Central or State Government
• Loans from public financial institutions or scheduled banks
• Securities subscription money, provided allotment occurs within 60 days
• Advances for business transactions to be settled within 365 days
• Deposits from directors who declare that the funds are not borrowed
• Funds received from another company

Any amount outside these exemptions falls under the category of Acceptance of Deposits and must comply with the applicable regulations.

Also Check: Incorporation of Company and Matters Incidental Thereto

Provisions for the Acceptance of Deposits

Companies accepting deposits must adhere to specific provisions under the Companies Act, 2013, ensuring legal compliance, financial stability, and depositor protection. These provisions outline the conditions, procedures, and restrictions that companies must follow to accept deposits from members and, in some cases, the public. Understanding these provisions is crucial for corporate governance and financial management.

Section 73: Conditions for Accepting Deposits from Members

Under this section, private companies may accept deposits from members, provided they meet specific criteria:

1. Approval in a General Meeting
A company must pass a resolution in its general meeting before accepting deposits. This ensures transparency and shareholder awareness.

2. Issuance of Circular to Members
The company must circulate an official document detailing:

• Financial statements
• Credit rating
• Total number of existing depositors
• Due amounts related to previous deposits
• Any additional prescribed information

3. Filing with the Registrar of Companies (ROC)
A company must file the circular with the ROC at least 30 days before issuing it to members.

4. Deposit Repayment Reserve Account
Companies must deposit at least 20% of the total deposits maturing in the following financial year into a Scheduled Bank before April 30 each year.

5. Compliance Declaration
The company must certify that no previous defaults have occurred in repaying deposits or interest.

Section 74: Repayment of Existing Deposits

Companies that accepted deposits before the commencement of the Act must repay them within:

• Three years of the Act’s commencement
• The original deposit maturity date (whichever is earlier)

If a company faces difficulty repaying, it may apply to the Tribunal for an extension based on financial stability, pending repayments, and related factors.

Public Deposits: Section 76

While private companies are restricted to member deposits, certain public companies can accept deposits from the public under stringent conditions.

Eligibility for Accepting Public Deposits

A public company must fulfill these conditions to raise public deposits:

• Net worth of at least Rs. 100 crore
• Annual turnover exceeding Rs. 500 crore
• Approval via Special Resolution in a General Meeting
• Filing the Special Resolution with the ROC

Additional Compliance for Public Deposits

• Obtaining a credit rating before inviting deposits and annually thereafter
• Creating a charge on company assets equivalent to the deposit amount within 30 days

Penalties for Non-Compliance: Section 76A

Non-compliance with Acceptance of Deposits regulations attracts severe penalties.

For the Company:

• Minimum fine of Rs. 1 crore (or twice the deposit amount, whichever is lower)
• Maximum fine of Rs. 10 crore

For Responsible Officers:

• Imprisonment up to 7 years
• Fine between Rs. 25 lakh and Rs. 2 crore
• In severe fraud cases, additional penalties under Section 447 of the Act

The Acceptance of Deposits is a complex yet vital aspect of corporate finance. Adhering to statutory requirements ensures financial stability and protects stakeholders from fraudulent activities. CA students must thoroughly understand these provisions, as they form an integral part of corporate law and auditing practices.

Understanding the Acceptance of Deposits is crucial for CA exams and future careers. Join PW CA Courses to master corporate finance, taxation, and auditing concepts. Get guidance in your CA journey!