Note on Deposit

CS Dharmesh Vankar | 12-Feb-2017

Note on Deposit

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Deposit means any receipt of money by way of deposit or loan or in any other form by a Company, however, it doesn’t include certain transactions, some of them are as follows:

  1. 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 from a local authority, or from a statutory authority constituted under an Act of Parliament or a State Legislature;
  2. Any amount received by a company from any other company;
  3. 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;
  4. The loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance;
  5. The amount received from a person who at the time of receipt, was a director of the Company (any company – private or public)  or relative of a director of the private company.

The term relative is defined in section 2(77) of the Act.

One can find other exclusion from a deposit in rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014.

Depositor means any member of the company who has made a deposit with the Company or any person who has made a deposit with a public company as per sec.76 of the Companies Act, 2013 (Act).

Steps to accept deposit and Compliance thereon

The company has to obtain prior approval of shareholders by way of 75% of majority (special resolution) and file the same with ROC before accepting deposit from its members. If eligible Company is accepting deposit from a person other than its members within the limit of Sec. 180(1)(c) then prior approval of shareholders by way of 50% of majority (ordinary resolution) is required instead of special resolution. Following compliance needs to be followed for accepting deposits:

Period of Deposit: 6 – 36 months

Repayment of deposit should range between 6 months to 36 months

However, for a meeting of the short-term requirement of funds, Company can accept deposit and repay it before 6 months, subject to compliance with the following condition:

  1. Such deposit amount should not exceed 10% of aggregate of Paid up share capital, free reserves and securities premium account of the company
  2. Such deposit should not be paid earlier than 3 months from the date of acceptance of deposit.

Limit:

Eligible Company* - Deposit amount from member should not exceed 10% (other than from member – 25%) of an aggregate of the Paid up share capital, free reserves and securities premium account of the company.

* eligible company means a public company having a net worth of not less than Rs.100 crore or turnover of not less than Rs.500 crore and which has obtained prior approval of 75% majority of shareholders and filed the same with ROC before making an invitation to the public for acceptance of deposits.

Other than eligible Company - 35% of the aggregate of the Paid up share capital, free reserves and securities premium account of the company from members.

The question may arise in the mind of one that what % of deposit amount limit needs to be considered in a case of Section 8 Company. In this case, one has to check the incorporation documents for ascertaining the status of the Company, whether it is public or private and determines the acceptance limit of deposit amount accordingly.

The rate of interest or brokerage:

The rate of Interest on brokerage shouldn’t exceed the maximum rate of interest prescribed by RBI for acceptance of deposits by NBFCs. (authorised person is only entitled to brokerage or interest, not another person.)

Credit Rating:

Note on Deposit

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Every eligible company has to obtain credit rating at the time of invitation of deposit from the public and once in a year during the tenure of deposits and a copy of same shall be sent to the ROC along with Return of Deposits in Form DPT-3. Below is the list of credit rating agency and Min. Rating required as per Directions issued by RBI.

Name of the agency Minimum investment Grade Rating
(a) The Credit Rating information Services of India Ltd FA- (FA Minus)
(b) ICRA Ltd. MA- (MA Minus)
(c) Credit Analysis and Research Ltd. CARE BBB(FD)
(d) Fitch Ratings India Private Ltd TA-(IND)(FD)
(e) Brickwork Ratings India Pvt Ltd (Brickwork) BWR FBBB
(f) SME Rating Agency of India Ltd. BWR FBB


The issue of circular or advertisement:

Issue circular to all its members by Regd. Post with acknowledgement due or speed post or by electronic mode in Form DPT-1. The circular may also publish in the English language in 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 and shall also place such circular on the website of the company if any.

Before the issue, a copy of circular or circular in the form of advertisement is to be delivered to the Registrar not less than 30 days before the date of such issue. (Date of the issue of the newspaper in which the advertisement appears shall be taken as the date of issue of the advertisement and the effective date of issue of circular shall be the date of dispatch of the circular.

Deposit Insurance:

The Company inviting deposits shall enter into a contract for providing deposit insurance at least 30 days before the issue of circular or advertisement. (The amount of insurance premium of such deposit shall be borne by the Company itself.)

Creation of security by way of charge:

Company inviting secured deposit shall provide for security by way of a charge on its assets as referred in schedule III of the Companies Act, 2013 excluding intangible assets of the Company for due repayment of deposit and interest thereon for an amount which shall not be less than the amount remaining unsecured by deposit insurance. [security amount = total amount of deposit – amt. secured by deposit insurance].

Appointment of trustee:

Before issuing circular or advertisement inviting secured deposit, Company has to appoint one or more trustee for depositors for creating security for deposits. The company shall execute a deposit trust deed in Form DPT-2 at least 7 days before issuing circular or circular in the form of advertisement.

Deposit Application form:

A form of application for deposits shall contain a declaration by proposed depositor to the effect that the deposit is not being made out of any borrowed by him for any other reason.

Furnishing of Deposit receipt:

The company has to furnish Deposit receipts to the depositor within 21 days from the date of receipt of money or realisation of the cheque.

The company has to deposit with schedule bank in a separate bank account to be called as deposit repayment reserve account with such amount which shall not be less than 15% of an amount of deposit maturing during a financial year and subsequent financial year.

Return of Deposit to be filed with ROC:

The company which accepting deposit has to file with ROC, on or before the 30th day of June of every year, a return in form DPT-3 and furnish the information as on the 31st day of March of that year duly audited by the auditor of the Company.

Note on Deposit

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SUGGESTION

Instead of complying with above lengthy, costlier and cumbersome procedure, I suggest that better to convert the Company from Public Limited to Private Limited as private limited company has less compliance in comparison with public limited and MOST IMPORTANTLY Deposit provisions shall not apply to private companies which accept 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 to the ROC.

For conversion of a company from public to private, following compliance needs to be done:

  1. Conduct Board meeting for considering the conversion of the company
  2. Obtain shareholders’ approval by way of passing special approval in general meeting.
  3. Filing of petition with National Company Law Tribunal for approval for conversion of company from public to private
  4. After getting an order from Tribunal regarding the conversion of the company, intimate the same to ROC.

Now, It is up to the management that whether they want to continue as Public Limited or Private Limited by keeping in mind the pros and cons.

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About the Author
CS Dharmesh Vankar
I am a sanguine Company Secretary (A-42284) with open nature who easily associates with new people and is always ready to grasp new things regardless of time and place, hails from "Sanskari Nagri" - Vadodara. You can reach me @ 9558930408 or write me on dharmeshvankar22@gmail.com