Basic guide to deposit with request compliance
In this article, we are supposed to cover one of the most open for discussion topic “Deposit” though the section is very ambiguous due to its vast definition of exceptions we are getting ahead only for the basic terminology and essential compliances of filing an offer of Deposit and Return of Deposit and after reading the same A reader will have a fundamental knowledge of Deposit.
Introduction to Deposit
Every loan comes under the ambit of Deposit but every loan is not a Deposit this is what definition under section 2(31) of Companies Act, 2013 “Deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include:
So here are the exceptions to the definition of “Deposit” that the following amounts received by the company shall not be considered as Deposit.
- Receipt of Amount from Central or State Government, Local or Statutory Authority.
- Receipt of amount from a source that is repayable by Central or State Government.
- Receipt of amount from international sources with comes under the provision of FEMA:
Multilateral financial institutions
Foreign export credit agencies
Foreign bodies corporate
A person resident outside India
Any other Subject to the approval of FEMA
- Receipt of an amount as loan or facility from Co-operative Banks, Banking Company, Banks notified by CG as per RBI Act.
- Receipt of an amount as loan from PFI, FI, Regional Financial Institutions, or scheduled banks.
- Receipt of funds against Commercial papers.
- Any Inter-Corporate Loans or Deposit.
- The amount received towards an offer of subscription to security, share application money or advance as well as pending allotments
but if securities are not allotted withing 60 days then such amount shall be also covered under Deposit if such amount is not refunded to the subscriber within 15 days after completion of 60 days.
- The amount transfer by the director through his own funds only not borrowed funds.
- Transfer by a relative of the director through his own funds only.
- Secured Debenture/Bond with the first charge on any tangible assets or Convertible secured debenture with a term less than 5 years.
- Listed NCD’s (Non-Convertible Debentures)
- Security deposit received from an Employee in terms of his/her appointment but not exceeding his annual income from the company as well as the same should be interest-free.
- The interest-free amount received from a Trust or held in trust of a Company.
- The amount received as an advance in the due course of business for the following reasons:
a) Amount received as an advance for the supply of goods and services which is adjusted within a time lap of 365 days.
b) If the amount received under an obligation of any legal proceedings then a limit of 365 days shall not be applicable and the same shall not be considered as a deposit.
c) Advance received under an agreement of immovable property and the same is appropriated as per the terms of the agreement.
d) Security deposit to provide service or performance of a contract.
e) Advance received to supply Capital goods in the long run.
f) Receipt of advance money in place of warranty or AMC as per written agreement either for 5 years or as per common business practice whichever is less.
g) Receipt of amount from any sectoral regulator as directed by the Central or State Government.
h) Advance subscription money for Publication either in print or electronic media to be appropriated against such subscription.
In contradiction to the above points: Company dealing in those goods or services for which no authorization has been obtained amount received shall be Deemed Deposit in the lapse of 15 days from the date when it becomes due. (Applicable for point no. a, b, and c only)
- Unsecured loan bought by promoters of the company in a stipulation of any Bank or FI subject to the following condition:
A loan is provided as a stipulation imposed by a lender (Bank/FI) on promoters to contribute such finance;
A loan is provided by promoters themselves or through their relatives.
This exception under this subclause is only available till these loans are repaid.
- Receipt of the amount by a Nidhi Company.
- Funds received for subscription in respect of a chit under the Chit Fund Act 1982.
- Funds were obtained under any collective investment scheme as per SEBI regulations.
- Fund of Rs. 25 Lakhs or more received in a one-time transfer from a person by a start-up company by way of convertible note i.e. Equity convertible instrument or repayable within 5 years.
- Receipt of the amount under Alternative Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts, Real Estate Investment Trusts, and Mutual Funds registered with SEBI.
All aforementioned exceptions are not covered in the definition of “Deposit”.
Who is eligible to accept Deposit?
A Public Company who fulfill the following conditions:
Net worth not less than Rs. 100 Crore.
Turnover not less than Rs. 500 Crore.
Obtained Prior consent of Members in duly convened General Meeting by passing Special Resolution.
Note: If an eligible company accepts deposit by within limits specified under section 180(1)(c) of the Companies Act, 2013 shall be required to pass an Ordinary Resolution in case of acceptance of deposit from the public.
Other Companies Eligible to accept deposit:
A private company is a start-up or if fall under the following criteria:
1.Not an associate/subsidiary of any other company.
2. Borrowings from Bank/FI or any
Body-corporate is less than twice of its paid-up capital or Rs. 50 Crore, whichever is less
3. Company has not made any default in repayment of its borrowings.
Checklist to accept Deposit from Members
Though post-enactment of the Companies Act, 2013, No company is allowed to offer and accept deposit except a public company who fulfill the aforementioned Conditions but to accept Deposit from members, an Eligible company needs to abreast following conditions namely as well:
Other than Private Company
For Private Company
Special Resolution in General Meeting shall be filed with ROC within 30 Days.
Ordinary Resolution in General Meeting shall be filed with ROC within 30 Days.
Filing of Circular
Filing of the circular and statement with the Registrar within 30 days before the date of issue of the circular.in form DPT -1.
Certificate for Issuing Deposits shall be obtained and attached from the Statutory Auditor that the company has no defaults in past.
No Such Requirement in the case of Exempted Private Companies.
Before 7 days of issuing a circular in DPT-1 company is required to execute a deposit trust deed in DPT-2
Deposit Repayment Reserve (DRR)
1. Opening of Separate Bank account with a Schedule Bank DRR Account.
2.On or before 30th April each year, deposit 20% or more amount of Deposits maturing during the financial year
3.Amount Deposited not less than 20% in DRR account shall not be utilized for purposed other than repayment of funds
Charge on Assets Secured
(On the discretion of Company)
If secured debentures are issued then compliance of creation of charge has been made on such secured assets
if the company has not secured a deposit or partially secured deposit those Deposits shall be Termed as Unsecured Deposit
Receipt of Deposits
Provide receipts of deposit to depositors with 21 days of the amount received.
Similarly, Applicable to Exempted Private Companies.
Maintain Registers of Deposit and make entries within 7 days of receipt of the deposit amount.
Not less than 6 months or more than 36 months
Except: if the Deposit amount is not exceeding 10 % of its paid-up capital and free reserves and securities premium.
No company shall issue a deposit carrying rate of interest exceeding the rate provided by NBFC Norms.
Return of Deposit
E form DPT -3 shall be filed as a return of deposit annually by 30th June.
Limits to accept Deposit from Members:
Upto 100%of its paid-up capital & free reserves
Upto 10%of its paid-up capital & free reserves
Upto 35%of its paid-up capital & free reserves
Fulfills 3 conditions as mentioned above
Upto 5 years no limits no compliance
No limits No compliance
Upto 100%of its paid-up capital & free reserves
Some Quick FAQ’s on Deposit:
Ques1: What is the rate of penal interest for the overdue amount of deposit?
Ans: A Company is liable to pay 18% interest for delay repayment of deposit, Deposit which are matured & claimed but not repaid.
Ques2: Are deposits can be subscribed to in joint names?
Ans: Yes, Deposits can be subscribed jointly like shares but the number of joint holders cannot exceed 3 names.
Ques3: Can a Deposit holder appoint a nominee for subscribing a deposit?
Ans: Yes, just like a shareholder as allowed under section 72 a Deposit holder can also appoint a nominee who in case of death of the nominee can claim those deposit amounts.
Ques4: What is the maximum tenure for to preserve Registers of Deposit?
Ans: As mentioned in the act, The Register of deposit shall be preserved for 8 years by the authorized director or company secretary.
Ques5: Is it possible to claim a deposit before the date of maturity?
Ans: Yes, the Deposit amount can be claimed before maturity but only after completion of 6 months from the date of deposit at a reduced rate by 1%.
Ques6: What shall be the treatment of unclaimed/unpaid deposits?
Ans: As per section 125(2)(i) of The Companies Act, 2013 the amount which is unclaimed/unpaid in place of deposit for more than 7 years shall be transferred to IEPF (Investor Education & Protection Fund).
Ques7: What shall be the Penal Provision in case of Non-Compliance?
Ans: Contravention in Repayment of Deposit along with Interest.
Company Shall be liable to pay the Deposit amount along with Interest thereon,
A fine of min. 1 Crore or twice the amount of deposit, whichever is lower,
Which can be extended to 10 crores.
Officer or Directors in default shall be liable for imprisonment of seven years
A fine of not less than 25 lakhs which may be up to Rs. 2 Crore.