Regarding Deposit

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vijay

vijay (Querist)
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09 May 2008 Sir i like know the provision & compliance for corporate deposit for public co.

CA Sanat Pyne

CA Sanat Pyne (Expert)
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01 January 2011 (a) The clause, in addition to requiring the auditors to report on compliance with the requirements of section 58A and the directives of the Reserve Bank of India for acceptance of public deposits, also requires the auditor to:

(i) report on compliance with the provisions of section 58AA of the Act; and
(ii) report on compliance with the order, if any, passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal
7.

(b) Section 58A of the Act empowers the Central Government to prescribe, in consultation with the Reserve Bank of India, the limits up to 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. The section does not apply to a banking company or to such other company as the Central Government may, after consultation with the Reserve Bank of
India, specify in that behalf.

(c) On 3rd February 1975, the Central Government issued the Companies (Acceptance of Deposits) Rules, 1975. The Rules apply only to such companies as are not banking companies and are also not financial companies. Thus, financial companies are not covered by the Rules. Such companies continue to be governed by the directives issued by the Reserve Bank of India.

(d) The Rules cover the following main items:

(i) the nature of deposits which may be accepted and the terms thereof;
(ii) the limits up to which the deposits can be accepted;
(iii) the form and particulars of advertisement for deposits;
(iv) the form of application for deposits;
(v) furnishing of receipts to depositors;
(vi) maintenance of register(s) of depositors;
(vii) general provisions regarding the repayment of deposits and payment of interest;

(viii) the returns to be filed with the Registrar of Companies and the Reserve Bank of India.

(e) Section 58AA was inserted by the Companies (Amendment) Act, 2000 with effect from 13
th December 2000. The section deals with small depositors. According to the section, a small depositor is a depositor who has deposited in a financial year, a sum not exceeding twenty thousand rupees in a company and includes his successors, nominees, and legal representatives. The section lays down certain requirements to be complied with by the companies which have accepted deposits from such small depositors. Audit considerations similar to those that have been mentioned for section 58A would apply in regard to section 58AA also.

(f) The auditor should plan to test for compliance with the provisions of sections 58A, 58AA of the Act and the Rules made under section 58A. For such purpose, the auditor should also obtain an understanding of the requirements of sections 58A and 58AA and those of the relevant rules. Thereafter, the auditor should ascertain how the company is complying with the provisions of sections 58A, 58AA and the Rules made under section 58A.

(g) The auditor should examine compliance by the company with regard to all the matters specified in the sections and the Rules and not merely to the limits of the deposits. Where the number of deposits is very large, it is obviously not feasible for the auditor to satisfy himself that every single deposit complies with the rules. He should, therefore, examine the system by which deposits are accepted and records are maintained and make a reasonable
test check to ensure the correctness of the system. The auditor may also make a “check list” to ensure that all the requirements of the Rules regarding the records to be maintained, returns to be filed, etc., are complied with.

(h) The auditor should examine the efficacy of the internal controls instituted by the company so that the deposits accepted by the company remain within the limits. It may be difficult for the auditor to ascertain that deposits accepted by the company are within the limits on each day of the accounting year. He would, therefore, be justified in making a reasonable test check to ensure that the company has not accepted deposits during the year in excess of the limits. For financial companies, the auditor should make a similar examination having regard to the Reserve Bank directives in force from time to time. In this connection, attention is invited to section 45MA of the Reserve Bank of India Act, 1934. The section is reproduced in Appendix X to the Statement.

(i) Non-compliance of section 58AA would occur in the event when a company fails to intimate the Company Law Board any default in repayment of deposit made by small depositors or part thereof or any interest thereupon. The auditor has to, therefore, first determine whether there is a default in any repayment of such deposits. This would require the auditor to examine all the accounts related to small depositors. In case where a company has large
number of deposits accepted from small depositors, it may not be feasible for the auditor to first verify each account for default in repayment and then check whether the company has complied with the requirements of section 58AA of the Act. The auditor, in such a case,
should examine the internal control in place in this regard and determine its efficacy. The auditor should obtain a schedule of repayment of loans taken from small depositors from the management of the company. The auditor, thereafter, should make reasonable test checks of the repayments made by the company. In case the results of the test check reveal that the management has defaulted in repayment of deposits made by small depositors or part thereof or interest thereupon, the auditor should examine whether the same has been intimated to the Company Law Board.

(j) Apart from the audit procedures mentioned above, the auditor should also enquire of the management about the possible instances of non-compliance with sections 58A, 58AA or any other relevant provisions of the Act and the relevant rules. The auditor should also enquire the management about any order passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal for contravention of sections 58A, 58AA or any other relevant provision(s) of the Act and the relevant rules. The auditor should obtain a management representation to the effect whether:

(a) the company has complied with the directives issued by the Reserve Bank of India and the provision of section 58A and 58AA of the Act and the relevant rules; and
(b) where an order has been passed by any of the relevant authorities mentioned in the clause, the company has complied with the requirements of the Order.
(k) In case where the auditor is of the view that any kind of contravention of sections 58A and 58AA or any other relevant provisions of the Act or relevant rules, has taken place, the auditor should state in his report that the provisions of section(s) 58A and/or 58AA and/or relevant rules, as the case may be, have not been complied with. The auditor should also report the nature of contraventions in case the company has not complied with the relevant
directives of the Reserve Bank of India or the provisions of section 58A or with the provisions of section 58AA of the Act and the relevant rules8.

(l) The auditor, under this clause, is required to verify whether the company has complied with the order passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal. Where any of such authorities has passed an order, the auditor should examine the steps taken by the company to comply with the said order. If the company has not complied with the order, the same is to be reported stating therein the nature of contravention and the fact that the company has not complied with the order issued by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.