Provisions Related to Deposit

CS Ankur Srivastava (Company Secretary & Compliance Officer)   (17853 Points)

19 February 2010  

 

PROVISIONS RELATED TO DEPOSIT


 

  • Section 58A(2) prohibits invitation of deposits unless and advertisement has been published in the prescribed form in the manner specified in Rule 4 of the Companies (Acceptance of Deposit) Rules, 1975.


 

  • No company with a Net Owned Fund of less than Rs. 1 Crore shall invite public deposit.


 

  • Net Owned Fund Means

  1. Aggregate of the paid up capital and free reserve as disclosed in the latest balance sheet of the company after deducted therefrom

  • Accumulated balance of loss

  • Deferred revenue expenses

  • Other intangible assets


 

  1. Further reduced by the amount representing

  • Investment of such company in shares of

    • Its subsidiary

    • Companies in same group

    • All other Non Banking Financial Companies


 

  • The book value of debentures, bonds, outstanding loans and advances (include Hire purchase and lease finance) made to and deposits.

    • Subsidiary of such company

    • Contribution in the same group to the extent such amount exceed 10 % of (a) above.


 

  • No advertisement shall be issued by or on behalf of the Company unless on or before the date of issue of advertisement it has been delivered and received by the ROC signed by the majority of directors of the board.


 

  • A company may accept deposits upto following limits:-


 

  • Upto 10% of its paid up capital and free reserves from its shareholders (other than shareholders in the private company). These deposits may also includes any deposit from any person guaranteed by a director of the company or against unsecured debenture issued by the company.

  • Upto 25% of the paid up capital and free reserves of the company from public.


 

  • Rule 3(2A) provides that a Government Company may accept or renew deposit if the amount of such deposit does not exceed 35% of its paid up capital and free reserves including any short term deposit accepted by the Government Company upto 10% of its paid up capital and free reserves.

  • Rule3A of the deposit rules requires every company which has accepted/invited deposit within the meaning of Section 58A read with Rule 2(b), to deposit or invest on or before 30th April every year, a sum of not less than 15% of the amount of deposit maturing during the year ending on 31st March next following, in any or more of the mode sated therein.

Rule 3A(2) provides that the amount deposited or invested shall not be utilized for any other purpose other than for the repayment of deposits maturing during the year provided that the amount deposited or invested shall not at any time fall below 10% of the amount of deposit maturing till 31st March of that year.


 

  • Amount may be deposited or invested in any or more of the following modes:-


 

  • In current or the deposit account with a scheduled bank free from any charge or lien.

  • In unencumbered securities of Central Government or State Government.

  • In unencumbered bonds issued by HDFC


 

  • Under Rule 3(1)(a) a company cannot accept or renew deposit if it is repayable

    • On demand

    • On notice

    • Within a period of 6 months

    • After the period of 3 years


 

First proviso of that rule provides that the company may accept short term deposit repayable earlier than 6 months but not earlier than 3 months upto 10 % of the aggregate of the paid up capital and free reserves.


 

  • As per amendment dated 29/09/2003 in Rule 3(1)( c) a company can pay interest not exceeding 12.5% p.a., as specified by RBI, which shall be paid or compounded at rest which shall not be shorter than monthly rests.


 

  • Every company accepting deposit is required to keep at its registered office, register of deposit and the following particulars is required to entered therein

    • Name and address of the depositor

    • Date and amount of each deposit

    • Duration of deposit and the date on which each deposit is repayable

    • Rate of interest

    • Date of interest

    • Any other particulars.


 

  • Rule 7(2) provides that the register shall be kept in good order for a period of not less than 8 years form the date of first entry is made in the register.

And there is no rules giving any right or inspection to any person or taking

extracts from the register or obtain copy thereof.

  • Section 58A (3A) creates a statutory obligation to repay the deposits on its maturity, unless it is renewed for a further period. The breach of which results an offence punishable under the Companies Act. In case of payment before the date of maturity the Company may deduct the amount of interest by reducing the rate by 1%.


 

  • As per Rule 8A the penal rate of interest is 18% shall be paid for overdue period in case of public deposit matured, claimed and remain unpaid. In case of default is made relating to small depositors the penal rate of interest is 20%.


 

  • Under Rule 10 every company to which the deposit rules apply is required to file with ROC a Return of Deposit on or before 30th June every year. It should keep particulars with regard to deposits as on 31st March of that year. It is filled in attachment in e-form 62.It should be duly certified by the auditors of the Company and the Certificate of Auditor should be filled along with the return.


 

  • Non compliance of the rule is treated as cognizance offence and of continuing nature. However if no complaint is made within 6 months of 30th June, relating to the offence of not filing of return, is not punishable.


 

  • The Return of Deposit is required to be accompanied with the Certificate of Manager and this Manager’s Certificate is required to be signed by the Authorised Officer of the Company.