In the complex world of corporate finance, one of the critical aspects that companies must navigate the acceptance of deposits. These processes are governed by specific sections of the Companies Act and associated rules. This blog post aims to provide a comprehensive overview of these important topics.
Acceptance of Deposits from Public
Prohibition on Acceptance of Deposits from Public
The Companies Act places strict regulations on how companies can accept deposits from the public. As a general rule, companies are prohibited from accepting or renewing deposits from the public except in a manner prescribed by law. However, certain exceptions exist for banking companies and non-banking financial companies.
Acceptance of Deposits from Public by Certain Companies
Public companies meeting specific net worth or turnover criteria may accept deposits from non-members, subject to compliance with regulations. These companies must obtain and maintain a credit rating, create a charge on assets for secured deposits, and follow other prescribed rules.
Companies with the below requisites only take deposits from public.
Net Worth of ₹100 crore or more OR
Turnover of ₹500 crore or more
Procedure to be followed under companies act:
| Step No. | Action | Details | Form / Document |
| 1 | Board Meeting | Approve acceptance of deposits and draft of circular. | Board Resolution |
| 2 | Shareholder Approval | Pass special (or ordinary) resolution in general meeting. | Form MGT-14 |
| 3 | Credit Rating | Obtain rating from SEBI-registered credit rating agency. Must be updated annually. | Credit Rating Certificate |
| 4 | Prepare & File Circular | Prepare circular with financials, deposit details, etc. File it with wd ad 30 days before issue. | Form DPT-1 |
| 5 | Deposit Repayment Reserve | Deposit at least 20% of deposits maturing next year into a scheduled bank account by 30th April. | Bank Statement |
| 6 | Deposit Insurance | Obtain deposit insurance contract (if applicable). | Insurance Certificate |
| 7 | Create Charge (for Secured Deposits) | Create a charge on company assets within 30 days. | Form CHG-1 |
| 8 | Issue Circular | Circulate to members and publish in English & vernacular newspapers and on company website. | Published Circular |
| 9 | Accept Deposits | Start accepting deposits only after all previous steps. Issue deposit receipts within 21 days. | Deposit Receipt |
| 10 | Maintain Register | Maintain register of deposits at registered office with all prescribed particulars. | Deposit Register |
| 11 | Annual Return | File annual return of deposits on or before 30th June every year. | Form DPT-3 |
Penalties for Non-Compliance
Punishment for Contravention
The Act prescribes significant penalties for companies and their officers who fail to comply with the provisions related to deposits and charges. These penalties can include fines and, in cases of willful misconduct, even imprisonment.
Other SEBI Mandates Listed companies should keep in mind:
When it comes to listed companies or those intending to raise funds from the capital markets, the Securities and Exchange Board of India (SEBI) plays a key regulatory role. Borrowing by such companies is subject to additional norms to protect investor interests:
- Any default in payment of interest or repayment of principal on loans and debt securities
- Utilization of proceeds from public or rights issues of debt
- Periodic financial and operational disclosures to maintain transparency
These rules are intended to ensure investor protection, foster market confidence, and promote sound corporate governance in the debt market.
Conclusion
Navigating the legal landscape of company borrowing can be complex and challenging. While this overview provides a general understanding of the key aspects, it’s crucial to remember that each situation is unique and may require specific considerations.
For any company looking to engage in borrowing activities, we strongly recommend consulting with a professional team well-versed in company law and income tax regulations. Their expertise can help ensure compliance with all relevant laws and regulations, protecting your company’s interests and maintaining good corporate governance.
Remember, staying informed and seeking professional advice are key to making sound financial decisions for your company’s future.