Objectives & Agenda : Companies procure funds from various stakeholders by way of debentures, bonds, etc. In addition, they procure funds by way of inviting / accepting deposits from the public. In order to protect the interest of the depositors, stringent provisions are laid down in Companies Act, 2013 read with Companies (Acceptance of Deposits) Rules. This webinar provides an overview of the term deposits, inclusions and exclusions, eligible companies to accept deposits, conditions for acceptance of deposits, procedural aspects, penal provisions and income tax implications.

1. Acceptance of Deposits
CS. Meenakshi Jayaraman
DVS Advisors LLP
India-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com

2. Credits and Acknowledgments
Sundar Rajan S

3. Legends used in presentation
AGM Annual General Meeting
BOD Board of Directors
CAD Companies (Acceptance of Deposits)
CG Central Government
FEMA Foreign Exchange Management Act
FR Free reserves
FS Financial Statements
FY Financial Year
IFSC International Financial Services Centre
ITA Income Tax Act
NBFC Non-banking Financial Companies
PUC Paid-up share capital
ROC Registrar of Companies
RBI Reserve Bank of India
SEBI Securities and Exchange Board of India
SG State Government
SP Securities premium account
The Act Companies Act, 2013

4. Presentation Schema
Overview
Meaning of certain
terms
Meaning of deposits
Prohibition on
accepting deposits
Terms and conditions
Conditions u/s 73(2) Exceptions
Repayment of deposits
accepted before
commencement of the
Act
Damages for fraud Deposits from public
Punishment for
contravention
Other provisions
under CAD Rules
Income tax
implications
Judicial precedents

5. Overview
Companies raise funds for the business through various forms like issue of shares, debentures, obtaining loans,
deposits, etc.
Deposits, in general parlance, is money received from the public
Companies Act, 2013 ensures higher accountability on the Companies accepting deposits to protect
depositors’ interest and prevent malpractices by the Company

6. Meaning of certain terms
• It means a public company which satisfies the following conditions
• Having net worth of Rs. 100 Crores or more OR
• Turnover of Rs. 500 Crores or more (AND)
• Passed special resolution and filed Form MGT-14 before making invitation to the
public for accepting deposits
Eligible Company
• Any member of the company who has made a deposit with the company in accordance
with the provisions of Section 73(2) of the Act
• Any person who has made a deposit with a public company in accordance with the
provisions of Section 76 of the Act
Depositor
• One who is related to another by way of,
• Members of a Hindu Undivided Family
• Spouse
• Father, mother, son, daughter, spouse of son & daughter, brother and sister
• Includes step-father, step-mother, step-son, step-brother and step-sister
Relative
Ordinary resolution is sufficient provided such Company is accepting deposits within the limits specified u/s 180(1)(c)
Sec. 180(1)(c) – Existing + proposed borrowings <= aggregate of paid-up capital, free reserves and securities premium of the Company

7. Meaning of Deposits – Rule 2(1)(c) of CAD Rules
Any amount received from CG, SG, local authority or statutory authority formed under an Act of Parliament or State legislature or amount
received from any other source which is guaranteed by CG or SG
Any amount received from foreign governments, foreign banks, foreign governments, multilateral financial institutions, foreign body
corporates, foreign citizens, etc. subject to the provisions of FEMA
Any amount received as a loan or facility from any banking company or from State Bank of India or any of its subsidiary banks
Any amount received as a loan or financial assistance from Public Financial Institutions notified by the CG in consultation with RBI
Any amount received against issue of commercial paper or any other instruments in accordance with RBI guidelines
Any amount received by a company from any other company
Deposit includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include ,

8. Contd.
Any amount received pursuant to an offer made towards subscription of securities. However, if securities are not allotted within 60 days and
refund not made within 15 days then such amount will be treated as Deposit
Any amount received from the director of the company and in case of private company also from the relative of the director of the company
subject to the condition that the amount has been given from own funds and not from borrowings & disclose the details in Board’s Report
Any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with first charge on assets
excluding intangible assets, bonds or debentures compulsorily convertible into shares within 10 years
Any amount raised by issue of Unsecured Non-convertible debentures and listed on a recognised Stock exchange
Non-interest-bearing security deposit from employee of the company under the contract of employment not exceeding his annual salary
Any non-interest bearing amount received and held in trust

9. Contd.
Any amount received in the course of and for the purpose of business of the Company,
a) As advance for supply of good or services provided such advance is appropriated against supply of goods or provision of services within
365 days of receipt of advance. However, in case of any advance which is subject matter of any legal proceedings before any court of law,
the time limit of 365 days shall not apply
b) As advance in connection with consideration for an immovable property provided such advance is adjusted against such property in
accordance with the terms of the agreement
c) As security deposit for the performance of the contract for supply of goods or provision of services
d) As advance under long term projects for supply of capital goods other than those mentioned in (b) above
e) As advance towards consideration for future services in the form of warranty or maintenance contract if the period for providing such
services does not exceed the period prevalent as per common business practice or 5 years, from the date of acceptance of such service
whichever is less
f) As advance received which is allowed by any sectoral regulator or as per CG or SG directions
g) As advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of publications
If the amount received under (a), (b) & (d) above becomes refundable due to lack of necessary permission or approval to deal in the concerned
goods or services, then the amount received shall be deemed as deposit on the expiry of 15 days from the date they become due for refund

10. Any amount of unsecured loan brought in by the promoters subject to the fulfilment of the following conditions:
the loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to
contribute such finance
the loan is provided by the promoters themselves or by their relatives or by both; and
the exemption under this sub-clause shall be available only till the loans of financial institution or bank are
repaid and not thereafter
Any amount accepted by a Nidhi Company
Any amount received by way of subscription in respect of a chit under the Chit Fund Act, 1982
Any amount received by the company under any collective investment scheme in compliance with SEBI Regulations
An amount of 25 lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or
repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person
Any amount received by a company from Alternate Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts,
Real Estate Investment Trusts and Mutual Funds registered with SEBI
Contd.

11. Prohibition on accepting deposits – Sec. 73 of the
Act
Deposits
Deposits from
members
Deposits from public
Deposits under Companies Act are categorised into two
No company other than eligible companies shall accept or renew deposits from the public
Companies shall however accept deposits from its members provided the terms and conditions specified in the CAD Rules
and in the Act are fulfilled
However certain exemptions from fulfilling the terms and conditions are available to Private limited companies and specified
IFSC public Company
The provisions of this section are not applicable to banking company and non-banking financial Companies as defined in the
RBI Act, 1934 and such other companies as the CG may specify after consultation with RBI

12. Conditions
Company accepting deposits shall satisfy the following:
Approval from members by passing resolution in general meeting
Terms and conditions as specified in Rule 3 of CAD Rules, 2014 (applicable to both deposits from members and public)
Conditions specified in Section 73(2) of the Act

13. Terms and conditions – Rule 3
Common points – Applicable to all companies
No deposits which are repayable on demand shall be accepted or renewed
No deposits which are repayable on notice within a period of 6 months or more than 36 months shall be accepted or renewed
However, a company may accept deposits repayable earlier than 6 months provided,
If depositors desire, deposits may be accepted in joint names not exceeding 3
Interest rate on deposits or brokerage shall not exceed the maximum rate prescribed by RBI for deposits accepted by NBFCs
Company shall not alter the terms and conditions of deposits and related agreements after circular being issued and deposits are accepted
such deposits do not exceed 10% of
the aggregate of paid-up share
capital, free reserves and securities
premium of the company
such deposits are not repayable
within 3 months from the date of
such deposits or renewal
AND
Only persons authorised in writing by the companies to solicit deposits on its behalf shall be entitled to brokerage

14. Specific points – Limits on deposits
i. Eligible Company (other than government company)
Deposits
from
members
Existing + proposed deposits on the date of acceptance should be <= 10% of (PUC + FR + SP)
Any other
Deposits
Existing + proposed deposits (excluding deposits from members) on the date of acceptance
should be <= 25% of (PUC + FR + SP)
ii. Eligible Company (being a government company)
Any
Deposits
Existing + proposed deposits on the date of acceptance should be <= 35% of (PUC + FR + SP)
Acceptance shall also include renewal of deposits

15. Specific points – Limits on deposits
iii. Company other than eligible company
Deposits
from
members
Existing + proposed deposits on the date of acceptance or renewal should be <= 35% of (PUC + FR + SP)
Exceptions to the above limit
Private and Specified IFSC public Company: Separate limit of 100% of (PUC + FR + SP) is applicable for acceptance of deposits from
members. Further, details of deposits to be filed with ROC in Form DPT-3
Private company being a start-up: Limits shall not apply for a period of 5 years from the date of its incorporation
Private company which satisfies all the conditions stated below:
The above limit shall not apply to the following companies:
Not being an associate or
subsidiary Company of any other
company
Borrowings from banks, FI or any
body corporate is less than
Twice of PUC (OR) Rs. 50 Crores
Whichever is less
Not defaulted in repaying such
borrowings at the time of
acceptance of deposits
All the companies accepting deposits shall file the details of monies so accepted with ROC in Form DPT-3
i.
ii.
iii.

16. Credit rating for deposits accepted shall be obtained atleast once in a year
Credit rating shall be obtained from any approved credit rating agencies as specified for NBFCs by RBI
Credit rating shall not be below the minimum investment grade rating or other specified credit rating for fixed depositsas
specified for NBFCs by RBI
A copy of credit rating obtained shall be attached in Form DPT-3 and filed with ROC
Specific points – Credit rating
Eligible Company

17. Conditions under Section 73 (2)
Issuance of circular to its members with statement containing financial position of the Company, credit rating obtained, total number of
depositors, amount due towards previous deposits accepted and other particulars as given in Rule 4 – Clause a
A copy of the circular along with such statement shall be filed with ROC within 30 days before the date of issue of the circular – Clause b
Deposit Repayment Reserve account to be maintained with scheduled bank in which atleast 20% of the total deposits maturing during
the following FY should be deposited on or before 30th April of each year - Clause c
Certificate from an auditor stating that the Company has not committed any default in repayment of deposits or default has been made
and 5 years has lapsed from the date of making good such default - Clause e
Providing security on deposits due or interest thereon including the creation of charge on property or assets of the Company – Clause f
Where deposits are partially secured or not secured, then such deposits shall be termed as unsecured deposits and to be quoted in all
documents inviting deposits

18. Exceptions to Section 73(2)
Private and Specified IFSC public Company which accepts from its members monies <= 100% of (PUC + FR + SP)
Private company being a start-up, for a period of 5 years from the date of its incorporation
Private company which satisfies all the conditions stated below:
Clauses ‘a’ to ‘e’ of sub-section 2 of Section 73 shall not apply to the following companies:
Not being an associate or
subsidiary Company
Borrowings from banks, FI or any
body corporate is less than
200% of PUC (OR) Rs. 50 Crores
Whichever is less
Not defaulted in repaying such
borrowings at the time of
acceptance of deposits
All the companies accepting deposits shall file the details of monies so accepted with ROC in Form DPT-3

19. Rule 4 – Particulars of advertisement or circular
Specific points
i. Eligible Company
ii. Company other than eligible company
Circular in the form of
advertisement shall be
issued in Form DPT-1
It shall be advertised in
English and vernacular
language newspaper
It shall be placed on the
website of the Company, if
any
Circular shall be issued to
all its members in Form
DPT-1
It shall be sent by
electronic mode, speed
post or registered post with
acknowledgement due
Circular may be advertised
in English and vernacular
language newspaper

20. Circular shall be issued
only on the authority
and in the name of the
BOD of the Company
Circular or circular in
the form of
advertisement shall not
be issued before
delivering the same to
the Registrar not less
than 30 days before the
date of issue of circular
Circular shall be valid
until the expiry of 6
months from the date
of closure of the FY in
which it is issued or the
date on which FS are
laid or should have
been laid in the AGM,
whichever is earlier
A fresh circular or
circular in the form of
advertisement shall be
issued in each
succeeding FY for
inviting deposits during
that FY
General points
Date of issue of advertisement – Date of issue of newspaper in which the advertisement appears
Effective date of issue of circular – Date of dispatch of circular

21. Appointment of trustees
No company shall issue a circular or advertisement inviting secured deposits unless the
company has appointed one or more trustees for depositors for creating security for the
deposits
A written consent shall be obtained from the trustee for depositors before their
appointment. Trustee shall satisfy the qualifications prescribed under Rule 7 of CAD
A deposit trust deed shall be executed in Form DPT-2 at least 7 days before issuing the
circular
Deposit trustees shall not be removed after issue of circular / advertisement and before the
expiry of his term except with unanimous consent of all directors present at the meeting of
the Board, which shall include an independent director, if any

22. Other conditions under Section 73
Deposits accepted by the Company shall be repaid with interest in accordance with the terms and conditions of the agreement
In case of default in repayment, depositor may apply to Tribunal asking for the Company to repay the due amount or
loss/damage incurred for non-payment by Company or for such other orders as Tribunal may deem fit
Deposit Repayment Reserve account shall be used only for the purpose of repayment of deposits

23. Repayment of deposits accepted before
commencement of the Act – Section 74
Where amount of deposits or part thereof or interest due remains unpaid or becomes due, on the date of commencement of
the Act, the Company shall
File DPT-4 within 3 months from the date of
commencement of the Act or the date of
becoming due, AND
Repay within 3 years from the date of
commencement of the Act OR on or before the
expiry of due date of repayment, whichever is
earlier
Renewal of any such deposits shall be done only in accordance with the provisions of Chapter V and the rules made thereunder
Tribunal may allow extension of time to repay the deposit when Company makes application on this regard
Contravention of the section – Section 74(3)
Company Officer-in-default
Fine: Rs. 1 – 10 Crores Fine: Rs. 25 lakhs – 2 Crores (or)
Imprisonment: Upto 7 years (or) both

24. Damages for fraud – Section 75
Without prejudice to Section 74(3) and 447, if it is proved that deposits are accepted with the
intention to deceive the depositors
Every officer responsible for acceptance of such deposits is personally liable for all losses
that may have been incurred by the depositors
Any suit, proceedings or other action may be taken by depositors affected, on the
Company

25. Deposits from public – Section 76
Eligible Company shall accept deposits from public subject to compliance with provisions of Section 73(2) and such
rules as the CG may prescribe in consultation with RBI
Such Company shall obtain credit rating from recognised agencies every year during the tenure of deposits
Such Company shall create a charge on its assets of an amount >= the amount of deposits accepted, within 30 days
of acceptance of such deposits

26. Security for deposits
All Company inviting secured deposits shall provide for security by way of a charge on its assets as referred to in Schedule III of
the Act excluding intangible assets of the company for the due repayment of the amount of deposit and interest thereon
Such security (not being pledge), either on specific movable or specific immovable property, shall be created in favour of a
trustee for the depositors
Amount of such deposit (principal + interest) shall not exceed the market value of the assets on which charge was created
(assessed by a registered valuer)

27. Punishment for contravention – Section 76A
Company Officer-in-default
Fine: Rs. 1 Crore (OR) twice the deposit amount accepted,
whichever is less
Maximum fine may extend to Rs. 10 Crores
• Fine: Rs. 25 lakhs to 2 Crores
AND
Imprisonment: Upto 7 years
• If proved that the officer has willfully contravened the
provisions, then, he/she shall also be liable u/s 447
For contravention of the provisions of Section 73 or Section 76 or Rules made there under:
1) Acceptance of deposits or allowing any other person to accept deposits in contravention of manner or conditions
prescribed;
2) Fails to repay deposits or part thereof or interest within the time prescribed there under;
3) Fails to repay deposits or part thereof or interest within such further time allowed by Tribunal

28. Other provisions under CAD Rules
Registers for deposits to be compulsorily
maintained at the registered office of the
Company containing particulars of each
depositor
Entries in the register shall be made
within 7 days of issue of the deposit
receipt
Register shall be preserved in good order
for a period of not less than 8 years from
the FY in which the latest entry is made
in the register
Every company shall pay a penal rate of
interest of 18% p.a. for the overdue
period in case of deposits (secured or
unsecured) matured and claimed but
remaining unpaid
Every private Company shall disclose in
its notes to FS about the money received
from the directors, or relatives of
directors and every other company, shall
disclose the details of money received
from the directors

29. Return of Deposits
Annual
return
One-time
return
•Form DPT-3 should be filed on or before 30th June of every year by all Companies accepting deposits
•Particulars of deposits as on 31st March of that year duly audited by the auditor of the Company shall be furnished
• Form DPT-3 should be filed by all Companies except Government Company having outstanding borrowings (from
01-04-2014 to 31-03-2019) not considered as deposits under CAD Rules
• It should have been filed on or before 29th June, 2019 (within 90 days from 31st March, 2019)
•The above Form DPT-3 for one-time return is not required to be filed if there is no outstanding borrowings as on
31st March, 2019

30. Income tax implications under ITA, 1961
Sec. 269SS
• Loan or deposit shall not be taken or accepted by a Company from any person in cash of an amount of Rs. 20,000 or more
• The above provisions shall not apply in case the deposits are accepted by/from Government, Banking company, Post office
savings bank, co-operative bank, Corporation established by an Act or Government Company & companies notified by CG
Sec. 269T
• Loan or deposit shall not be repaid by a Company to any person in cash of an amount of Rs. 20,000 or more
• Above provisions shall not apply to repayment of deposits accepted from Government, Banking company, Post office savings
bank, co-operative bank, Corporation established by an Act or Government Company & companies notified by CG
Sec. 271D
Sec. 271E
• In case of contravention of Section 269SS or 269T, penalty is levied to the tune of loan amount accepted/repaid
Sec. 273B
• However, if there’s a reasonable cause for accepting or repaying such loan in cash which the assessee can prove, then the
penalty u/s. 271D & 271E will not be levied

31. Judicial precedents
Every deposit would mean and include all previous deposits accepted by company
Therefore, petition filed by depositors for recovery of their deposits made prior to 1-4-2014 under section 73 on failure of company to
repay their deposits would be maintainable and allowed
Legislature does not differentiate between depositors prior to or after 1-4-2014 (i.e. before or after the commencement of the Act)
Bimla Kothari v. Unitech Ltd. [2016] 75 taxmann.com 151 (NCLT - New Delhi)

32. Thank You
DVS Advisors LLP
India-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com
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