Acceptance of Deposits by Companies

Introduction 

Chapter V of the Companies Act, 2013 governs the acceptance of deposits by companies. Section 73 lays down a general prohibition on companies inviting, accepting, or renewing public deposits except in the prescribed manner. Banking companies and NBFCs under the RBI Act, 1934, and any company specified by the Central Government in consultation with the RBI, are exempt from this prohibition.

Conditions for Acceptance of Deposits from Members (Section 73) 

A company may accept deposits from its members upon passing a resolution in general meeting, subject to the following conditions: 

• Circular: Issue a circular to members disclosing the company's financial position, credit rating, total depositors, and amount due on previous deposits. 
• Filing: File a copy of the circular with the Registrar at least thirty days before its issue. 
• Deposit Repayment Reserve Account: Deposit, by 30th April each year, not less than twenty per cent of deposits maturing in the following financial year into a separate scheduled bank account. This account shall not be used for any purpose other than repayment of deposits. 
• Certificate of no default: Certify that no default exists in repayment or interest payment; where a past default occurred, it must have been made good and five years must have lapsed. 
• Security: Unsecured or partially secured deposits must be explicitly described as "unsecured deposits" in all circulars and documents.

Where a company fails to repay, the depositor may apply to the Tribunal for recovery of the amount due along with loss or damage suffered.

Repayment of Deposits Accepted Before Commencement of the Act (Section 74) 

Where deposits accepted before the Act's commencement remain unpaid, the company must: 

• File a statement with the Registrar within three months, disclosing all unpaid deposits and interest along with repayment arrangements. 
• Repay within three years from commencement or before the expiry of the deposit period, whichever is earlier. Renewal must comply with Chapter V.

The Tribunal may allow further time on application by the company, considering its financial condition. 

• Penalty for default: Fine not less than one crore rupees, extendable to ten crore rupees; every officer in default faces imprisonment up to seven years, or fine not less than twenty-five lakh rupees extendable to two crore rupees, or both.

Damages for Fraud (Section 75) 

• Where deposits under Section 74 are not repaid and it is proved that deposits were accepted with intent to defraud or for any fraudulent purpose, every responsible officer shall be personally liable without any limitation for all losses or damages suffered by depositors, in addition to liability under Section 447. Any person or association of persons who suffered loss may bring an action in this regard.

Acceptance of Deposits from the Public (Section 76) 

A public company with the prescribed net worth or turnover may accept deposits from the public, subject to Section 73(2) conditions and the following additional requirements: 

• Credit Rating: Obtain a rating from a recognised credit rating agency covering net worth, liquidity, and ability to repay — to be disclosed to the public and renewed every year during the deposit tenure. 
• Charge Creation: Within thirty days of accepting secured public deposits, create a charge on company assets of not less than the deposit amount in favour of deposit holders.

Punishment for Contravention (Section 76A) 

Where a company accepts deposits in contravention of Sections 73 or 76, or fails to repay within the prescribed or Tribunal-extended time: 

• Company: Fine not less than one crore rupees or twice the deposit amount, whichever is lower, extendable to ten crore rupees, in addition to repayment of principal and interest. 
• Officer in default: Imprisonment up to seven years with fine not less than twenty-five lakh rupees, extendable to two crore rupees. 

Where contravention is knowing or wilful with intent to deceive the company, shareholders, depositors, creditors, or tax authorities, the officer shall additionally be liable under Section 447. 

Conclusion 

Chapter V of the Companies Act, 2013 establishes a balanced framework protecting depositor interests while enabling companies to raise funds through deposits. Mandatory disclosures, reserve requirements, credit rating obligations, and graduated penal provisions — including unlimited personal liability in fraud cases — ensure accountability at both the corporate and individual officer level.