COMPANY DEPOSIT RULES

1.

The rules do not apply to banking companies and financial companies for which RBI have separately prescribed rules.

2.

Deposit means deposit of money with, and includes any amount borrowed by, a company, but does not include certain types of borrowings; viz., amount received :

a)

from Government Local Authority, Foreign Government or any other foreign person, citizen or authority or any amount guaranteed by Government.

b)

from Banks.

c)

from various Government or semi-Government financial Cos. or Corporation/insurance Cos. or a public financial institution as may be notified by the CG.

d)

from any other company.

e)

by way of security deposit from an employee.

f)

by way of security or advance from any purchasing, selling or other agents in the course of business or any advance received against orders for supply of goods, properties or services.

g)

by way of subscripttion to any share, stock, bonds or debentures pending allotment. Any amount received by way of calls in advance so long as this is not repayable under the Articles.

h)

in trust or in transit.

i)

also refer to amendments in Section 3(1)(iii) and S. 43A by the Companies Amendment (Act), 2000.

j)

by a private company from a director or member out of his own funds (that is not borrowed or accepted from others). The director/shareholder concerned however has to furnish a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others. Also refer to amendments in section 3(1)(iii) and section 43A by the Companies (Amendment) Act, 2000.

k)

by issue of bonds or debentures secured by the mortgage of any immovable property or with an option to convert them into shares. Provided the amount does not exceed the market value of property.

l)

from promoters by way of unsecured loans pursuant to agreement with financial institutions for loans so long as such loans are outstanding.

3.

The company shall not accept any deposit which is repayable :

a)

on demand

b)

on notice

c)

before 6 months or after 36 months from date of deposit.

4.

Limits up to which deposits can be accepted :

A company with Net Owned Fund (NOF) of less than Rs. 100 lakhs shall not invite public deposits. NOF shall have the same meaning as contained in RBI Act, 1934.

5.

W.e.f. March 1st, 1997 no company shall accept or renew any deposits in any form if it is in default in the repayment of any deposit or part thereof and any interest thereon in accordance with the terms and conditions of such deposits.

6.1

Paid-up capital and free reserves should be as per latest audited balance sheet.

6.2

Free reserves do not include

a)

reserve created for payment of future liability, for depreciation or for bad debts

b)

reserve created by revaluation of assets

6.3

Free reserves include

a)

balance in share premium account

b)

capital or debenture redemption reserve

6.4

Following have to be reduced from capital and reserves:

a)

accumulated balance of loss

b)

balance of deferred revenue expenditure

c)

intangible assets if disclosed in Balance Sheet

7.1

Interest can be paid at maximum rate of 12.50% [changed to 14% w.e.f. 22-5-2001 and to 12.5% w.e.f. 4-2-2002]

7.2

If a deposit is prematurely repaid, the company can pay interest at a rate 2% less than that which the company would have paid had the deposit been accepted for the period for which the deposit had run.

7.3

Brokerage can be paid as under :

8.

A depositor may make a nomination in Form No. 2B at any time and the provisions of sections 109A and 109B would apply accordingly.

9.

Every Co. has to deposit or invest at least 15% of its deposits maturing during the F.Y. ending 31st March every year latest by 30th April in the beginning of the year in any of the specified assets taken at their market value and the said sum can be utilised only for repayment of deposits maturing during the year but at no time the amount shall fall below 10% of the amount maturing before 31st March of that year.

10.1

Every Co. intending to invite/causing any other person to invite deposits shall issue an advertisement for this purpose in a leading English newspaper and in 1 vernacular newspaper circulating in the State in which registered office of the Co. is situated.

10.2

The text of the advertisement has to be approved by the Board of Directors in their meeting and the advertisement once given will be valid up to the date of next AGM or until the expiry of 6 months from the date of closure of the F.Y. in which this advertisement is issued whichever is earlier.

10.3

Without a valid advertisement a company cannot invite deposits. A copy of such advertisement duly signed by a majority of the Directors on the Board has to be filed with the Registrar of Companies. The details of advertisement and the form are prescribed in the Rules.

10.4

If a company does not invite deposits but still wants to accept deposits, it can do so without issuing an advertisement by filing a statement in lieu of advertisement giving the same information each year with the Registrar of Companies.

11.

Company is required to file a return with the Registrar of Companies and a copy to RBI on or before 30th June every year containing information as on 31st March of that year duly certified by the auditors of the Company in a prescribed form.

12.

Penalty is provided in the Act and Rules for the Co. in default and every officer of the Co. in default for such contravention.

A penal interest of 18% shall become payable for overdue period in case of public deposits matured and claimed but remaining unpaid.

13.

Small Scale Industries

The provisions of S. 58A of the Companies Act, 1956 and the rules regarding acceptance of deposits do not apply to a company which is SSI unit as described in Notifn. dtd 2.2.1996 issued by Dept. of Company Affairs with effect from 2.2.1996. To avail of this exemption, a Co. should fulfil the following conditions :

a)

It should be registered with the Directorate of Industries or Directorate of Small-scale Industries.

b)

Its investment in plant and machinery should not exceed Rs. 100 lakhs in value.

c)

Its paid-up capital should not exceed Rs. 25 lakhs.

d)

It should not accept deposits from more than 100 people.

e)

There should be no invitation to the public for deposits.

f)

The amount of deposits should not exceed Rs. 20 lakhs or its paid-up capital, whichever is less.

14.1

The Central Government is empowered to grant exemption or extension of time to a company or a class of companies from some or all of the provisions of Deposit Rules.

14.2

The Tribunal is now empowered to extend the time of repayment of deposits upon certain conditions being fulfilled.