The invitation and acceptance of public deposits by companies
were brought within the jurisdiction of Companies Act in 1974. Rule have been
framed prescribing the limits upto which, the manner in which and the conditions
subject to which deposits may be invited or accepted by a company either from
the public or from its members. Section 58-A and Companies (Acceptance of
Deposits) Rules made the under contains the restrictions and limitations
subject to which deposits may be invited and accepted by companies. The
provisions of the Section and the summary of the important rules made thereunder
are as follows:
1. Meaning of deposit. Explanation to s.58-A defines the expression 'deposit' to mean any deposit of money with and includes any amount borrowed by a company but shall not include such categories or amount as may be prescribed in consultation with the Reserve Bank of India.
1. Meaning of deposit. Explanation to s.58-A defines the expression 'deposit' to mean any deposit of money with and includes any amount borrowed by a company but shall not include such categories or amount as may be prescribed in consultation with the Reserve Bank of India.
Further rule 2 (b) provides that 'deposit' means any deposit
of money with and includes any amount borrowed by a company. However, the
expression 'deposit' does not include:
(i) any amount received from the Central Government
or a State Government or any amount
received from any other source and whose repayment is guaranteed by the Central
Government or State Government or any amount received
from a local authority or a foreign Government or any other foreign citizen, authority or person;
(ii) any amount received as a loan
from any banking company including a co-
Operative bank;
(iii) any
amount received from any of the notified financial institutions;
(iv) any
amount received by a company from any other company;
(v) any
amount received from an employee of a company by way of security deposit;
(vi) any
amount received by way of security or as an advance from any purchasing agent, selling agent or other agents in course
of or for the purposes of the business of
the company or any advance received against orders for the supply of goods or properties or for
the rendering of any services;
(vii) any
amount received by way of subscriptions to any shares, stock, bonds or debentures and any amount received by
way of calls in advance on shares, in
accordance with the Articles of the company so long as such amount is not repayable to the members under the Articles;
(viii) any
amount received in trust or any amount in transit;
(ix) any
amount received from a director or shareholder of a private company or a deemed public company which continues
to include in its Articles restrictive clauses
of s.3 (1) (iii);
(x) any
amount raised by issue of the bonds or debentures secured by the mortgage of any immovable property of the company or
with an option to convert them
into shares in the company. (However, in the case of such bonds or debentures secured by the mortgage of any
immovable property, the amount of
such bonds or debentures must not exceed the market value of such immovable property);
(xi) any
amount brought in by the promoters by way of unsecured loans in pursuance
of stipulations of financial institutions subject to the fulfillment of the following conditions; namely: (a) the
loans are brought in pursuance of the stipulation
imposed by the financial institutions in fulfillment of the obligation of the promoters to contribute such
finance; (b) the loans are provided by the promoters
themselves and / or by their relatives and not from their friends and business associates; and (c) the exemption
shall be available only till the loans of
financial institutions are repaid and not thereafter.
2. No
Company shall invite or accept any deposit except after the publication of an
advertisement specifying therein the financial condition, management structure
and other specified particulars of the company. The "renewal of
deposits" are included in the "acceptance of deposits" [Jagjivan Hiralal Doshi and others v.
Registrar of Companies (1989) 65 Comp. Cas.553].
3. Every
deposit by a company, unless renewed in accordance with the rules made under
s.58A, shall be repaid in accordance with the terms and conditions of such
deposit.
4. The form
of application shall contain a declaration by the depositor that the money is
not being deposited out of funds acquired by him by borrowing or accepting deposits
from any other person.
5. A
company cannot accept or renew deposits payable on demand.
6. Also, a
company cannot accept deposits repayable before 6 months. However, deposits for
less than 6 months may be accepted provided such deposits do not exceed 10% of
the paid-up capital and free reserves.
However, in no case shall a company accept deposits
repayable before 3 months.
7. Ceiling on deposits. A company shall not
accept deposits over and above the following limits:
(a) 10 per
cent of the paid up capital and free reserves, in case of deposits in the form of any deposit against an
unsecured debenture, deposit from a shareholder
(not being a deposit accepted by a private company from its shareholders) or any deposit
guaranteed by the Directors of the Company;
(b) any
other deposit exceeding 25 per cent of the aggregate of the paid-up share capital and free reserves of the Company.
8. No Government
company shall accept any deposits in excess of 35 per cent of its paid-up
capital and free reserves.
9. Penalties for contravention. Any deposit
received in contravention the provisions of the Act/Rules must be paid back
within 30 days from the date of acceptance of such deposit. The period of 30
days may be extended by the Central Government by another period but not
exceeding 30 days.
In case of default, the company shall be subjected to fine
which shall not be less than twice the amount not repaid and ½ of the fine shall be paid to the
depositor. In addition, every officer of the company, who is in default, shall
be punishable with imprisonment for a term which may extend upto 5 years [s.58A
(5)].
Penalty for acceptancc
of deposit. Where the contravention relates to acceptance of deposit, the
company may be subjected to fine which shall not be less than the amount of
deposit so accepted.
Penalty for invitation of any deposit. Where contravention relates to the invitation of
any deposit, the company shall be punishable with fine which
may extend to Rs 10 lakh but shall not be less than Rs 50,000.
In both these cases of acceptance or invitation of deposit
in contravention, every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend upto 5 years and shall
also be liable to fine [H.H. Marthanda varma & H.H. Bhupendra Narain
Singh v. Registrar of Companies (1988) Comp. Cas.125].
10. Register of deposits. According to Rule
7 every company accepting deposits shall keep at its registered office one or
more registers in which there shall be entered separately in the case of each
depositor the following particulars, namely: (a) name and address of the
depositor; (b) date and amount of each deposit; (c) duration of the deposit and
the date on which each deposit is repayable; (d) rate of interest; (e) date or
dates on which repayment of interest will be made; (f) any other particulars
relating to the deposit.
The register of deposit shall be kept for a minimum period
of 8 years from the financial year in which the latest entry is made in the
register.
11 . Where a company has failed to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board may, if it is satisfied, either on its own motion or on the application of the depositor, that it is necessaey to do so safeguard the interests of the company, the depositors or the public, by order direct the company to make repayment of such deposit or part thereof fortwith or within such time and subject to such conditions as may be specified in the Order- sub-s.(9).
11 . Where a company has failed to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board may, if it is satisfied, either on its own motion or on the application of the depositor, that it is necessaey to do so safeguard the interests of the company, the depositors or the public, by order direct the company to make repayment of such deposit or part thereof fortwith or within such time and subject to such conditions as may be specified in the Order- sub-s.(9).
However in the following circumstances, application under
s.58A(9) of the Act will NOT lie: (vide Dept. of Company Affairs Notificated
dt. 8.3.1990).
(i) Deposit made for booking/purchase
of scooter, car, etc.
(ii) Deposits accepted by financial companies like hire-purchase, finance company, a housing finance company, an investment company, a loan/mutual benefit financial company, an equipment leasing company, a chit fund company or a company, which receives deposits under any scheme or arrangement by way of contribution/subscription or by sale of units/certificates.
(iii) Deposits accepted by a sick industrial company covered by the Sick Industrial Companies (special Provisions) Act, 1985, in respect of which Board for Industrial & Financial Reconstruction, has specifically, by order, suspended the operation of any contract, agreement, settlement, etc. under s.22(3) of the said Act.
(ii) Deposits accepted by financial companies like hire-purchase, finance company, a housing finance company, an investment company, a loan/mutual benefit financial company, an equipment leasing company, a chit fund company or a company, which receives deposits under any scheme or arrangement by way of contribution/subscription or by sale of units/certificates.
(iii) Deposits accepted by a sick industrial company covered by the Sick Industrial Companies (special Provisions) Act, 1985, in respect of which Board for Industrial & Financial Reconstruction, has specifically, by order, suspended the operation of any contract, agreement, settlement, etc. under s.22(3) of the said Act.
(iv) Deposits accepted by relief undertakings
which are notified as such under the
State Laws.
Further, it may be clarified that the depositors can,
besides the relief under the Companies Act, take action against the defaulting
companies under the normal civil law of the country.
12. Maintenance of liquid assets. Every company shall be fore the30th day of April of each year, deposit or invest, as the case may be, a sum which shall not be less than 15 per cent (w.e.f. 1st April 1992) of the amount of its deposits maturing during the year ending on the 31st of March next following in any one or more of the securities prescribed in this regard. The amount so invested or deposited shall only be used in repayment of the deposits outstanding and repayable within next 31st March. At no time such investment or deposit shall fall below 10% of the deposits repayable within next 31st March.
12. Maintenance of liquid assets. Every company shall be fore the30th day of April of each year, deposit or invest, as the case may be, a sum which shall not be less than 15 per cent (w.e.f. 1st April 1992) of the amount of its deposits maturing during the year ending on the 31st of March next following in any one or more of the securities prescribed in this regard. The amount so invested or deposited shall only be used in repayment of the deposits outstanding and repayable within next 31st March. At no time such investment or deposit shall fall below 10% of the deposits repayable within next 31st March.
It may be noted that all deposits of non-banking and
non-financial companies are regulated under s.58A and the Rules made thereunder.
Register of deposits.
According to Rule 7, every company accepting deposits shall keep at its
registered office one or more registers in which there shall be entered separately
in the case of each depositor the following particulars, namely: (a) name and
address of the depositor; (b) date and amount of each deposit; (c) duration of the
deposit and the date on which each deposit is repayable; (d) rate of interest; (e)
date or dates on which repayment of interest will be made; (f) any other particulars
relating to the deposit.
The register of deposit shall be kept for a minimum period
of 8 years from the financial year in which the latest entry is made in the
register.
Facility of nomination
etc. The Companies (Amendment) Act, 1999 provides that a depositor under
s.58A is allowed to make a nomination. The provisions of newly introduced Ss.
109 A and 109 B shall apply to such a nomination also.
Exemptions. The
provisions of s.58A do not apply to:
1. A banking
company [s.58A (7)].
2.
Companies other than banking companies as the Central Government may after consultation with the Reserve
Bank of India, specify in this behalf.
Exemption of small
scale units; In pursuance of its powers, the Central Government has, after consultation
with the Reserve Bank of India, granted exemption from the applicability of the
provisions of s.58A to the companies which are small scale units as per the
parameters notified from time to time.
According to the notification GSR No .73 (E), dated 2-2-7996,
the exemption from the provisions of s.58A of the Act shall be available to
small scale industrial units only if they fulfill all the following conditions,
namely: (a) the paid-up capital of the company does not exceed rupees 25 lakhs;
(b) the company accepts deposits from not more than 100 persons; (c) there is
no invitation to public deposits; and (d) the amount of deposits accepted by
the company does not exceed rupees 20 lakhs or the amount of its paid-up
capita, whichever is less.
3. Financial
companies as the central government may, after consultation with the Reserve
Bank of India, specify in this behalf.
However, the central government cannot exempt the financial
companies from the provisions relating to advertisement contained in s.58A(2)(b).
The Central Government, in exercise of its aforesaid powers, exempted all
classes of financial companies from all the provisions of s.58A except the
provisions relating to advertisement-vide Notification No. SD 523 (E), dated 18-9-
t975.
Power of the central government to grant total or partial exemption [s.58A (8)]: The Central Government has been empowered to grant partial or total exemption from the provisions of s.58A for a specified period to a company (or a class of companies) after consultation with the Reserve Bank of India. The Central Government is also empowered to grant extention of time to any company (or a class of companies) after consultation with the Reserve Bank in complying with these provisions.
Issue of commercial
paper exempted. The Department of Company Affairs has vide notification
dated 29-12-1989 exempted the class of companies which fulfil the criteria
under the Non-Banking Companies (Acceptance of Deposits through Commercial
Paper) Directions, 1989 from the provisions of s.58A with respect to
deposits received by non-banking companies by the issue of
commercial paper as per the aforementioned Directions. The following conditions
are required to be satisfied: (i) the companies comply with the terms and
conditions stipulated from time to time by the Reserve Bank of India relating
to the issue of such commercial paper; and (ii) the companies in their annual
account disclose the maximum amount raised at any time during the financial
year and the amount outstanding as at the end of the financial year.
Advertisement for
inviting deposits (Rule 4). Every company intending to invite deposits or
allowing or causing any person to invite deposits on its behalf is required to
issue an advertisement for the purpose in a leading English newspaper and in
one vernacular newspaper circulating in the State in which the registered
office of the company is situated. Each advertisement should contain the
particulars as prescribed in Rule 4. The advertisement must be issued on the
authority and in the name of the Board of Directors of the company. It must
also. state the date on which the text was approved by the Board of Directors.
It must contain reference to the conditions subject to which the deposits shall
be accepted by the company.
According to s.58B, an advertisement inviting a prospectus
and consequently all the provisions of the Act, applicable to the prospectus,
are applicable to the advertisement inviting deposits.
Signing of
advertisement. The advertisement should be signed by a majority of the directors
in the Board of the company, as constituted at the time the Board approved the
advertisement, or their duly authorised agents, in writing and a copy of the same
should be delivered to the Registrar of companies for registration. Even a letter
of authority is sufficient for this purpose and power of attorney is not necessary.
[Circular No. 23/75 (1)14/75-CL (IV)]
dated 25-9-1975 issued by the Department of Company Affairs].
Period of validity of
advertisement and delivery of the text to the registrar. The advertisement
shall remain valid for a period of 6 months from the date of the closure of the
financial year in which it is issued or until the date the balance sheet is
laid before the company in general meeting or where the Annual General Meeting is
not held, the latest date on which the meeting should have held, whichever is
earlier. A fresh advertisement has to be made in each succeeding financial year
for inviting deposits thereafter.
Statement in lieu of advertisement (Rule 4A). Where a company intends to accept deposits without inviting or allowing or casing any other person on its behalf, to invite such deposits, it need not issue the advertisement. It is, however, required to file with the Registrar a statement in lieu thereof containing all the particulars required to be included in the advertisement under the Rules and signed (in the same manner as the advertisement for deposits is to be signed) before accepting any deposit.
Statement in lieu of advertisement (Rule 4A). Where a company intends to accept deposits without inviting or allowing or casing any other person on its behalf, to invite such deposits, it need not issue the advertisement. It is, however, required to file with the Registrar a statement in lieu thereof containing all the particulars required to be included in the advertisement under the Rules and signed (in the same manner as the advertisement for deposits is to be signed) before accepting any deposit.
The statement in lieu of advertisement shall be valid until
the expiry of 6 months from the date of closure of the financial year in which it
is so delivered or until the date on which the balance sheet is laid before the
company in the annual general meeting, or, where the annual general meeting for
any year has not been held, the latest day on which that meeting should have
been held in accordance with the provisions of the Act, whichever is earlier.
Acceptance of deposits in joint names [Rule 8(2)]. Where depositors so desire, deposits may be accepted in joint names not exceeding three, with or without any one of the clause namely “either or survivor”
Return of deposits (Rule 10). Every company is required to file with the Registrar on or before 30th June every year, a return of deposits in the prescribed from furnishing information contained therein as on 31th of March of that year duly certified by the auditors of the company. A copy of the return is required to be simultaneously
furnished to the Reserve Bank of India. Acceptance of deposits in joint names [Rule 8(2)]. Where depositors so desire, deposits may be accepted in joint names not exceeding three, with or without any one of the clause namely “either or survivor”
Return of deposits (Rule 10). Every company is required to file with the Registrar on or before 30th June every year, a return of deposits in the prescribed from furnishing information contained therein as on 31th of March of that year duly certified by the auditors of the company. A copy of the return is required to be simultaneously
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