Chronicle of Added Capital-Deposit

[sachin bhola]

In ordinary parlance a Deposit is money placed with some other entity to be used for some specific purpose at a later point of time. Companies used to borrow money to liquidate their short term as well as long term financial needs. The companies Act, 2013 authorizes company for accept deposits from its member or from public but subject to fulfillment of certain conditions as laid down.

The Companies Act, 2013 ("ACT") read with The Companies (Acceptance of Deposits) Rules, 2014 ("RULES") exhaustively deals with the provisions of deposits as applicable.

Section 2 (31) of the act defines the term "Deposits" as "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 reserve bank of India."

The rules also lays down an exhaustive definition of "Deposits" as defined in the rule 2 (C). The only difference in both the definition is that the definition provided in the rules is specifically enumerating the instances of exclusion from the definition of deposit. Following are the exclusions:

• Any amount received from central government or state government or any local authority or statutory authority. This category also includes amount guaranteed to be repaid by such government or authority;
• Any amount received from any foreign entity. This sub-rule specifically including International Financial Corporation, Asian Development Bank, Commonwealth Development Corporation and International Bank for Industrial and Financial Reconstruction. However sub-rule is also petty much clear about the chances of inclusion in future i.e. this list is not exhaustive in nature. The sub-rule may further categorically include:
  • Foreign Government;
  • Foreign Bank;
  • Foreign export credit;
  • Foreign government owned development financial institution;
  • Foreign collaborators;
  • Foreign bodies corporate;
  • Foreign citizen;
  • Person resident outside India who is subject to the provisions of FEMA, 1999.
  • Any amount received as a loan from any bank in India;
  • Any amount received as a loan from Public Financial Institution;
  • Amount received from issue of commercial paper;
  • Amount received from other company;
  • Amount received pursuant to issue of shares but it shall be deemed to be a deposit where advance is made and securities is not issued in a period of 60 days or refund is not effected in a period of 15 days.;
  • Amount received by any person acting in capacity of director;
  • Amount received from issue of bonds or debentures;
  • Amount received from an employee under a contract in nature of non-interest bearing security deposits;
  • Non-interest bearing amount received by a trust;
  • Amount accepted by Nidhi company;
  • Any amount brought in by promoter by way of unsecured loan.

Who Can Accept Deposits?

The Companies Act, 2013 along with elaborative rules lays down provisions for acceptance of deposits from members as well as from public. On face of it, it is restricting right of inviting and accepting deposits from public. But, in later part of sub-section it is permitting subject to satisfaction of conditions as prescribed in Sub-section (2) of Section 73 of the act.

A private company can accept deposits from public as well as from its member and there is no eligibility apart from the conditions as laid down under Sub-section (2) of Section 73.

Whereas if public companies wants to invite and accept deposit from public, it must comply, in addition to the conditions of section 73(2), express eligibility criteria as pen downed in the rules and is termed as "Eligible Companies".

On basis of above discussion following two approaches can be carved out:

• Acceptance of Deposits from Members;
• Acceptance of Deposits from Public.

1. ACCEPTANCE OF DEPOSITS FROM MEMBER

As per the provisions of Section 73 (2) read with rules, both public company as well as private company can invite, accept or renew deposits from its member subject to fulfillment of following conditions:

• Passing of Ordinary resolution in General Meeting;
• Issuance of Circular:- following are the procedure and content of such circular:
  • Must be sent to every member of the company;
  • Must be sent through Registered post or speed post or by e-mail;
  • Sent to registrar in form DPT-3;
  • Must be supported by an advertisement in an English newspaper and vernacular newspaper;
  • Financial Position of the company;
  • Credit rating from recognized credit rating agency;
  • Total number of depositors;
  • Any previous amount due;
  • Company must file with registrar such circular along with statement at least before 30 days before issue of circular to members;
  • Has to deposit at least 15% of amount of deposits maturing in current year and next year with schedule bank in a separate account;
  • Providing deposit insurance;
  • certification to effect that company has not committed any default in repayment of deposits;
  • Providing security.

II. ACCEPTANCE OF DEPOSITS FROM PUBLIC

Section 76 explicitly declares that only prescribed company is allowed to accept deposits from the person other than its member. But such companies are obliged to such rules as laid down by Reserve Bank of India in addition to the conditions as provided in Section 73 (2).

Rule 2 (d) defines the term "Eligible Company" to mean a public company as referred in Section 76(1), having the following:

• Net worth should not be less than 100 crore;
• Turnover should not be less than 500 crore.

Who Cannot Accept Deposits?

Section 73 specifically restricts any kind of company from inviting and accepting or renewing deposits from public except in a manner provided under the chapter V i.e. Acceptance of Deposits by Companies.

Companies under section 73(2) and eligible companies cannot accept deposits in following situations:

• If such deposit is repayable on demand;
• If such deposit is repayable on a notice period which is less than 6 months or more than 36 months.

Non Applicability of Prohibitions

Proviso to sub-section (1) of section 73 is clearly excluding following companies from the purview of this chapter:

• Banking Companies;
• Non-Banking Financial Company;
• Other company as specified by Central Government from time to time.

Thus, these exclusions are not exhaustive in nature. Power has been conferred with central government to include any other type of companies under the blanket of exclusions. However, these powers are to be exercised only with consultation of Reserve Bank of India.

Limit of Deposits

Rule 3 provides terms and conditions for acceptance and invitation of deposits. The rule also provide for extend up to which a company can invite and accept deposits. Following are the following limits:-

S. No.	Nature of Company		Limit
1.	Public company or Private company accepting deposits from member		Not more than 25% of aggregate of paid-up share capital and free reserve.
2.	Eligible companies	If accepting deposits from member.	Not more than 10% of aggregate of paid-up share capital and free reserve.
		If accepting deposits from public.	Not more than 25% of aggregate of paid-up share capital and free reserve.
3.	Government eligible companies		Not more than 35% of aggregate of paid-up share capital and free reserve.

Thus, an eligible company can accept up to aggregate of 35% of its paid up share capital and free reserve. Also, while calculating the maximum limit of deposits any amount outstanding as on date of acceptance and any renewal, if any, shall be taken into consideration.