Acceptance of Deposits by Companies PDF

# Chapter 5: Acceptance of Deposits by Companies ## Learning Outcomes At the end of this chapter, you will be able to: - Explain the meaning of the term 'Deposit'. - Comprehend the requirements for and restrictions on acceptance of deposits from members and the public. - Grasp the concept of 'eligib...

# Chapter 5: Acceptance of Deposits by Companies ## Learning Outcomes At the end of this chapter, you will be able to: - Explain the meaning of the term 'Deposit'. - Comprehend the requirements for and restrictions on acceptance of deposits from members and the public. - Grasp the concept of 'eligible companies' which can accept deposits from the public in addition to their members. - Identify the punishment for contravention of the provisions relating to acceptance of deposits by companies. ## Chapter Overview **Acceptance of Deposits** | Feature | Section | |---|---| | Prohibition on acceptance | Sec. 73 | | Repayment of deposits | Sec. 74 | | Acceptance of deposits from the public | Sec. 76 | | Punishment for contravention | Sec. 76A | ## 1. Introduction Chapter V consists of sections 73 to 76A as well as the Companies (Acceptance of Deposits) Rules, 2014. Acceptance of deposits from the members as well as the public at large is an important source of finance for the corporate sector. It is, therefore, necessary to control the companies which invite deposits in order to safeguard the general and wider interest of all those persons who offer deposits out of their precious savings. The statutory provisions as contained in sections 73 to 76A of the Companies Act, 2013 (hereinafter referred to as 'the Act') and the Companies (Acceptance of Deposits) Rules, 2014 (hereinafter referred to as 'the Rules') govern the acceptance of deposits and also renewal thereof. ## 2. Certain Important Terms Explained **A. Deposit** **Definition:** According to section 2 (31) of the Act, the term 'deposit' includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India. **Features:** - The above definition of 'deposit' is inclusive. - It includes any money received by way of: - Deposit - Loan - Any other form. - Repayment of 'deposit' is time-bound. - It can be secured or unsecured. - It does not include prescribed categories of amounts (as stated in the 'Acceptance of Deposits' Rules). - It may be accepted in joint names not exceeding three persons. - A depositor may nominate any person at any time. - Every deposit accepted by the company shall be repaid with interest. - Premature repayment of a deposit can be made by the company. - A private company can accept deposits from its members only. - A public company can accept deposits from its members and also from the public if it fulfils certain parameters. **B. Amounts Not Considered as Deposit** Following categories of amounts are not considered as deposit [Rule 2 (1) (c)]: - **(i) Any amount received from:** - The Central Government - A State Government - Any other source whose repayment is guaranteed by the Central Government or a State Government - Local authority - A statutory authority constituted under an Act of Parliament or a State Legislature. - **(ii) Any amount received from:** - Foreign Governments - Foreign or international banks - Multilateral financial institutions (including, but not limited to, International Finance Corporation, Asian Development Bank, Commonwealth Development Corporation, and International Bank for Industrial and Financial Reconstruction) - Foreign Governments owned development financial institutions - Foreign export credit agencies - Foreign collaborators - Foreign bodies corporate and foreign citizens - Foreign authorities or persons resident outside India. - The receipt of funds shall be subject to the provisions of Foreign Exchange Management Act, 1999 and rules and regulations made thereunder. - **(iii) Any amount received as a loan or facility from:** - Any banking company - State Bank of India or its subsidiary banks - A notified banking institution - A corresponding new bank (as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980) - Any co-operative bank - **(iv) Any amount received as a loan or financial assistance from:** - Public Financial Institutions - Any regional financial institutions - Insurance companies - Scheduled banks (as defined in the Reserve Bank of India Act, 1934) - **(v) Any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by the Reserve Bank of India.** - **(vi) Any amount received by a company from any other company (Mainly known as Inter Company Deposit (ICD))** - **(vii) Any amount received and held towards subscription to any securities (including share application money or advance towards allotment of securities, pending allotment), so long as such amount is appropriated only against the amount due on allotment of the securities applied for.** - **(viii) Any amount received from a person who, at the time of the receipt of the amount, was a director of the company or a relative of the director of the private company.** However, the director of the company or relative of the director of the private company, as the case may be, from whom money is received, is required to furnish to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board's report. - **(ix) Any amount raised by the issue of:** - Bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Companies Act, 2013 excluding intangible assets of the company, or - Bonds or debentures compulsorily convertible into shares of the company within 10 years However, if such bonds or debentures are secured by the charge of any assets referred to in Schedule III of the Companies Act, 2013, excluding intangible assets, the amount of such bonds or debentures shall not exceed the market value of such assets as assessed by a registered valuer. - **(ixa) Any amount raised by issue of non-convertible debenture not constituting a charge on the assets of the company and listed on a recognised stock exchange as per applicable regulations made by Securities and Exchange Board of India** - Example: Soorya Ltd. has raised ₹20,00,000 through issue of non-convertible debentures (20,000 NCDs of 100 each) not constituting a charge on the assets of the company. The NCDs are listed on a recognised stock exchange as per applicable regulations made by Securities and Exchange Board of India. The said amount will not be considered as deposit in terms of the rule stated above [Sub-clause (ixa)] - **(x) Any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest bearing security deposit.** - Example: Ratnakar was appointed as Supervisor by Siddhi Transporters and Logistics Limited on an annual salary of 6,00,000. He was required to deposit a sum of 6,50,000 under the contract of employment with the company as security deposit on which no interest was payable to him. In the above case, the amount so received by Siddhi Transporters and Logistics Limited from Ratnakar under the contract of employment with the company being non-interest bearing security deposit, will be considered as deposit in terms of sub-clause (x), since the amount is more than his annual salary. Had the amount of non-interest bearing security deposit received by the company under the contract of employment been limited to 6,00,000 or less, it would not have been considered as deposit. - **(xi) Any non-interest bearing amount received and held in trust.** - **(xii) Any amount received in the course of, or for the purposes of, the business of the company-** - **(a) as an advance for the supply of goods or provision of services accounted for in any manner whatsoever provided that such advance is appropriated against supply of goods or provision of services within three hundred and sixty-five days from the date of acceptance of such advance:** - However, in case of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of three hundred and sixty-five days shall not apply. - **(b) as advance, accounted for in any manner whatsoever, received in connection with consideration for an immovable property under an agreement or arrangement, provided that such advance is adjusted against such property in accordance with the terms of agreement or arrangement** - **(c) as security deposit for the performance of the contract for supply of goods or provision of services** - **(d) as advance received under long term projects for supply of capital goods except those covered under item (b) above:** - **(e) as an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement, if the period for providing such services does not exceed the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less:** - **(f) as an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government** - **(g) as an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications** However, it is clarified that if the amount received under items (a), (b) and (d) above becomes refundable (with or without interest) due to the reasons that the company accepting the money does not have necessary permission or approval, wherever required, to deal in the goods or properties or services for which the money is taken, then the amount received shall be deemed to be a deposit under these rules. Further, by way of Explanation it is clarified that for the purposes of this sub-clause the amount shall be deemed to be deposits on the expiry of fifteen days from the date they become due for refund. - **(xiii) any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank subject to the fulfilment of following conditions:** - **(a) the loan is brought because of the stipulation imposed by the lending institutions on the promoters to contribute such finance;** - **(b) the loan is provided by the promoters themselves or by their relatives or by both; and** - **(c) such exemption shall be available only till the loans of financial institution or bank are repaid and not thereafter.** - **(xiv) any amount accepted by a Nidhi company in accordance with the rules made under section 406 of the Act;** - **(xv) any amount received by way of subscription in respect of a chit under the Chit Fund Act, 1982;** - **(xvi) any amount received by the company under any collective investment scheme in compliance with regulations framed by the Securities and Exchange Board of India;** - **(xvii) an amount of twenty-five 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 ten years from the date of issue) in a single tranche, from a person.** - **By way of Explanation it is clarified that:** - **1. "Start-up company" means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with Notification Number G.S.R. 127 (E), dated 19-02-2019 issued by the Department for Promotion of Industry and Internal Trade;** - **2. "Convertible note" means an instrument evidencing receipt of money initially as a debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up company upon occurrence of specified events and as per the other terms and conditions agreed to and indicated in the instrument.** - **Example: Greedwood limited ('the company) which is register as start-up company register under Companies Act, 2013 has received an amount of 20 lacs and 10 lakh on different date by way of a convertible note. Though the company has received an amount of twenty-five lakh rupees or more, the said amount will be considered as deposit since the aggregate amount has not received in single tranche in terms of the rule stated above Sub-clause (xvii)].** - **(xviii) 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 the Securities and Exchange Board of India in accordance with regulations made by it.** - **Note:** Clarification regarding amounts received by private companies from their members, directors or their relatives before 1st April, 2014 whether to be considered as deposits or not under the Companies Act, 2013 (General Circular No. 5/2015, dated 30-03-2015) It is clarified that such amounts received by private companies prior to 1st April, 2014 shall not be treated as 'deposits' subject to the condition that relevant private company shall disclose in the notes to its financial statement the figure of such amounts and the accounting head in which such amounts have been shown. However, any renewal or acceptance of fresh deposits on or after 1st April, 2014 shall be in accordance with the Companies Act, 2013 and the rules made thereunder. **C. Depositor** **Definition:** As per Rule 2 (1) (d) of the Companies (Acceptance of Deposits) Rules, 2014, the term 'Depositor' means: - Any member of the company who has made a deposit with the company in accordance with the provisions of sub-section (2) of section 73 of the Act, or - Any person who has made a deposit with a public company in accordance with the provisions of section 76 of the Act. In other words: - Any member of a private or public company who has deposited money with his company is a 'depositor'. - Any person (even if not a member of the company) who has deposited money with a public company is also a 'depositor'. ## 3. Prohibitive Provisions and Exempted Companies **A. Prohibitive Provisions** According to section 73 (1) of the Act, no company can accept or renew deposits from public unless it follows the manner provided under Chapter V of the Act for acceptance or renewal of deposits from public. Manner of acceptance of deposits from public is explained later in the Chapter. **B. Exempted Companies** According to Section 73 (1), on and after the commencement of this Act, no company shall invite, accept or renew deposits under this Act from the public except in a manner provided under this Chapter: Provided that nothing in this sub-section shall apply to a banking company and non-banking financial company as defined in the Reserve Bank of India Act, 1934 and to such other company as the Central Government may, after consultation with the Reserve Bank of India, specify in this behalf. Besides above exempted companies, Rule 1 (3) also states that 'Deposit Rules' shall not apply to any Housing Finance Company registered with National Housing Bank established under the National Housing Bank Act, 1987. In nutshell, following are the exempted companies to which 'deposit provisions' are not applicable: - Any banking company - Any Non-banking Financial Company (NBFC) - Any Housing Finance Company (HFC) - Such other company as may be notified by the Central Government. This brings out the fact that 'deposit provisions' as contained in the Companies Act, 2013 and 'Deposit Rules' have been enacted to regulate acceptance of deposits by non-banking non-financial companies (i.e. manufacturing companies, trading companies, etc.) only. ## 4. Provisions Regarding Acceptance of Deposits from Members Any company may accept or renew deposits from its members by following the provisions as set out below: **1. Passing of a Resolution:** A company is required to pass a resolution in general meeting for acceptance of deposits from its members [Section 73 (2)]. **2. Issuance of a Circular containing Statement:** The company is required to issue a circular to its members including therein a statement showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in the prescribed form and manner. [Section 73 (2) (a)] According to Rule 4, the company shall issue such circular to all its members by registered post with acknowledgement due or speed post or by electronic mode in Form DPT-1. Further, the circular may be published in English language in an English newspaper and in vernacular language in a vernacular newspaper having wide circulation in the State in which the registered office of the company is situated. In addition, a certificate of the statutory auditor of the company shall be attached in Form DPT-1, stating that the company has not committed default in the repayment of deposits or in the payment of interest on such deposits accepted either before or after payment of interest on such deposits accepted either before or after the commencement of the Act. In case a company had committed a default in the repayment of deposits accepted either before or after the commencement of the Act or in the payment of interest on such deposits, a certificate of the statutory auditor of the company shall be attached in Form DPT-1, stating that the company had made good the default and a period of five years has lapsed since the date of making good the default as the case may be. Such Circular shall be issued on the authority and in the name of Board of Directors of the company. **The Circular shall remain valid till the earliest of the following dates:** - Up to six months from the closure of the financial year in which it is issued. - The date on which the financial statements are laid before the company at the Annual General Meeting (AGM), or in case no AGM has been held, the latest day on which the AGM should have been held as per the relevant statutory provisions. **A fresh circular shall be issued, in each succeeding financial year, for inviting deposits during that financial year.** **Example:** Ray Pharmaceuticals Limited issued a Circular inviting 'deposits' from its members on 14-02-2022. Its Annual General Meeting (AGM) was held on 07-09-2022. Since, six months from the closure of FY 2021-22 end on 30-09-2022, the Circular remains valid till 07-09-2022 only. After this date, a fresh Circular shall be issued if the company wants to invite further deposits from its members. **3. Filing of Circular:** The company is required to file a copy of the circular containing the statement with the Registrar within 30 days before the date of issue of the circular. [Section 73 (2) (b)] **4. Requirement of Deposit Repayment Reserve Account:** The company is required to deposit, on or before 30th of April each year, at least $20%$ of the amount of its deposits maturing during the following financial year and kept in a scheduled bank in a separate bank account to be called deposit repayment reserve account. [Section 73 (2) (c)] According to Rule 13 (Maintenance of Liquid Assets and Creation of Deposit Repayment Reserve Account), every company referred to in sub-section (2) of section 73 and every eligible company shall on or before the 30th day of April of each year deposit the sum as specified in clause (c) of the said sub-section with any scheduled bank and the amount so deposited shall not be utilised for any purpose other than for the repayment of deposits: **Provided that the amount remaining deposited shall not at any time fall below twenty per cent of the amount of deposits maturing during the financial year.** **5. Certification as to No default in Repayment:** The company needs to certify that it has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits. In case a default had occurred, the company made good the default and a period of five years had lapsed since the date of making good the default. [Section 73 (2) (e)] **Exemption to certain Private Companies:** Clauses (a) to (e) of sub-section (2) of section 73 with respect to issue of circular, filing the copy of such circular with the Registrar, depositing of certain amount and certification as to no default committed, shall not apply to a private company: - **(A) which accepts from its members monies not exceeding one hundred per cent of aggregate of the paid-up share capital, free reserves and securities premium account.** - **(B) which is a start-up, for five years from the date of its incorporation.** - **(C) which fulfils all of the following conditions, namely:** - **Which is not an associate or a subsidiary company of any other company.** - **If the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid-up share capital or fifty crore rupees, whichever is lower.** - **Such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under this section.** However, such a company [as referred to in clauses (A), (B) or (C)] shall file the details of monies accepted to the Registrar in the specified manner (i.e. in Form DPT-3). **6. Provision of Security:** The company may provide security, if any, for the due repayment of the amount of deposit or the interest thereon. Further, if security is provided, the company shall take steps for the creation of charge on the property or assets of the company. It may be noted that in case a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as 'unsecured deposits'. Accordingly, it shall be so quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits. [Section 73 (2) (f)] **7. Repayment of Deposit:** Every deposit accepted by a company shall be repaid with interest in accordance with the terms and conditions of the agreement. Where a company fails to repay the deposit or part thereof or any interest thereon, the depositor concerned may apply to the National Company Law Tribunal (NCLT) for an order directing the company to pay the sum due or for any loss or damage incurred by him as a result of such non-payment and for such other orders as the NCLT may deem fit. [Section 73 (3)] **8. Application to National Company Law Tribunal (NCLT) if the Company fails to repay:** In case a company fails to repay the deposit or part thereof or any interest thereon, the depositor concerned may apply to the NCLT for an order directing the company to pay the sum due or for any loss or damage incurred by him as a result of such non-payment and for such other orders as the NCLT may deem fit. [Section 73 (4)] **9. Utilising the Amount of Deposit Repayment Reserve Account:** The Deposit Repayment Reserve Account shall not be used by the company for any purpose other than repayment of deposits. [Section 73 (5)] Rule 13 also states that the amount so deposited in the Account shall not be used by the company for any purpose other than repayment of deposits. **10. Tenure for which Deposits can be Accepted:** A company is not permitted to accept or renew deposits (whether secured or unsecured) which is repayable on demand or in less than six months. Further, the maximum period of acceptance of deposit cannot exceed thirty-six months. **Example:** Arpit, a member of Swapnil Traders Private Limited deposited ₹1,00,000 with his company on 1st April, 2022. The earliest repayment date in this case shall be 30th September, 2022 and the latest repayment date shall be 31st March, 2025. Thus, the tenure will range between six months and thirty-six months, as per the policy of Swapnil Traders Private Limited. **Exception to the rule of tenure of six months:** For the purpose of meeting any of its short-term requirements of funds, a company may accept or renew deposits for repayment earlier than six months subject to the condition that: - **Such deposits shall not exceed ten per cent of the aggregate of the paid-up share capital, free reserves and securities premium account of the company; and** - **Such deposits are repayable only on or after three months from the date of such deposits or renewal.** **Example:** Continuing the example of Swapnil Traders Private Limited, it is assumed that aggregate of its paid-up share capital, free reserves and securities premium account is ₹2,00,00,000. In order to meet its short-term requirement of funds, it can raise deposits maximum up to ₹ 20,00,000 (being 10% of ₹2,00,00,000) whose repayment tenure can be less than six months; but such tenure cannot be less than three months. Therefore, Swapnil Traders Private Limited must ensure that the short-term deposits so accepted are repaid only on or after three months from the date of such deposits. **11. Maximum Amount of Deposits from Members:** A company is permitted to accept or renew any deposit from its members including other such deposits outstanding as on the date of acceptance or renewal maximum up to $35%$ of the aggregate of its paid-up share capital, free reserves and securities premium account. However, as an exception, a Specified IFSC Public company and a private company may accept from its members monies not exceeding $100%$ of aggregate of the paid-up share capital, free reserves and securities premium account. **12. Appointment of Trustee for Depositors:** As regards appointment of trustee, refer provisions given under 'Acceptance of Deposits from Public' because same provisions are applicable. **13. Trustee to call Meeting of Depositors:** The trustee for depositors shall call a meeting of all the depositors in the following cases: - On receipt of a requisition in writing signed by at least one-tenth of the depositors in value for the time being outstanding. - On the happening of any event, which constitutes a default or which, in the opinion of the trustee for depositors, affects the interest of depositors. **14. Ceiling on Rate of Interest and Brokerage Payable on Deposits:** A company is permitted to invite or accept or renew any deposit at any rate of interest or pay any amount of brokerage but in no case, it shall exceed the maximum rate of interest or brokerage prescribed by the Reserve Bank of India in case of non-banking financial companies (NBFCs) for acceptance of deposits. Further, no brokerage shall be paid to any person except the person who is authorised in writing by the company to solicit deposits on its behalf and through whom deposits are actually procured. Payment of brokerage to any other person for procuring deposits shall be deemed to be in violation of 'deposit rules'. **15. Filling of Application Form for making Deposits:** A company shall accept or renew any deposit, whether secured or unsecured, only when an application, as specified by the company, is submitted by the intending depositor for the acceptance of deposit. The application shall contain a declaration made by the intending depositor to the effect that the deposit is not being made out of any money borrowed by him from any other person. **16. Deposits in Joint Names:** In case the depositors so desire, deposits may be accepted by the company in joint names not exceeding three. A joint deposit may be accepted with or without any of the clauses, namely, "Jointly", "Either or Survivor", "First named or Survivor", "Anyone or Survivor". These clauses operate on maturity of deposits. **Example:** A, B and C have jointly deposited ₹ 3,00,000 in a company. - **In case of 'Jointly' clause:** The repayment of deposit on maturity shall be made to all the three together i.e. A, B and C or the survivors. - **In case of 'Either or Survivor' clause:** The repayment of deposit on maturity shall be made to either of the three i.e. either A or B or C or the survivor. - **In case of 'First named or Survivor' clause:** The repayment of deposit on maturity shall be made to the first named person i.e. A if he is the first named person or the survivor. - **In case of 'Anyone or Survivor' clause:** The repayment of deposit on maturity shall be as in the case of 'Either or Survivor'. **17. Nomination:** Every depositor may nominate any person at any time. The nominee shall be the person to whom his deposits shall vest in the event of his death. **18. Deposit Receipt:** Within a period of twenty-one days from the date of receipt of money or realization of cheque or date of renewal, the company is required to furnish a deposit receipt to the depositor or his agent. The receipt shall be signed by an officer duly authorised by the Board and state the date of deposit, the name and address of the depositor, the amount of deposit, the rate of interest and the maturity date. **19. Register of Deposits:** As regards Register of Deposits, refer provisions given under 'Acceptance of Deposits from Public' because same provisions are applicable. **20. Premature Repayment of Deposits:** As regards premature repayment of deposits, refer provisions given under 'Acceptance of Deposits from Public' because same provisions are applicable. **21. Filing of Return of Deposits with the Registrar:** A duly audited Return of Deposits in DPT-3 (containing particulars as on 31st March of every year) shall be filed with the Registrar of Companies along with requisite fee on or before 30th June of that year and declaration to that effect shall be submitted by the auditor in Form DPT-3. It is clarified by way of Explanation that DPT-3 shall be used to include particulars of deposits or particulars of transactions not considered as deposits or both by every company (other than a Government company). **22. No Right to Alter any Terms and Conditions of Deposit:** The company has no right to alter, either directly or indirectly, any of the terms and conditions of the deposit, deposit trust deed and deposit insurance contract which may prove disadvantageous to the interest of the depositors after circular or circular in the form of advertisement is issued and deposits are accepted. **23. Disclosures in Financial Statements:** A public company shall disclose in its financial statements by way of note about the money received from its directors. In case of a private company it shall disclose in its financial statements by way of note about the money received from the directors or the relatives of directors. **24. Penal Rate of Interest:** In case the company fails to repay deposits (both secured and unsecured) on maturity, after they are claimed, it shall pay penal rate of interest of eighteen per cent per annum for the overdue period. **25. Punishment for Contravention:** If any company inviting deposits or any other person contravenes any of the 'deposit rules' for which no punishment is provided in the Act, the company and every officer-in-default shall be punishable as under: * With fine extendable to five thousand rupees; and * In case the contravention is a continuing one, with a further fine which may extended to five hundred rupees for every day after the first day during which the contravention continues. ## 5. Provisions Regarding Acceptance of Deposits from Public by Eligible Companies [Section 76] Only 'eligible companies' are permitted to accept deposits from the public, in addition to their members. It means not all the companies can access the public at large for raising deposits though they can accept deposits from their members. Section 76 of the Act and the Companies (Acceptance of Deposits) Rules, 2014 deal with acceptance of deposits from public by eligible companies. The acceptance of deposits from public shall be subject to compliance with section 73 (2) and the prescribed rules. These provisions are stated as under: **1. Net Worth/Turnover Criterion:** A public company, having net worth of not less than one hundred crore rupees or turnover of not less than five hundred crore rupees, may accept deposits from persons other than its members. Such type of public company is known as 'eligible company'. **2. Passing of Special Resolution:** The 'eligible company' is required to obtain the prior consent by means of a special resolution in general meeting and also file the said resolution with the Registrar of Companies before making any invitation to the public for acceptance of deposits. However, an 'eligible company', which is accepting deposits within the limits specified under section 180 (1) (c), may accept deposits by means of an ordinary resolution. **3. Obtaining of Credit Rating:** The 'eligible company' shall be required to obtain the rating (including its net-worth, liquidity and ability to pay its deposits on due date) from a recognised credit rating agency. The given rating ensuring 'adequate safety' shall be informed to the public at the time of invitation of deposits from the public. Further, the rating shall be obtained every year during the tenure of deposits. - As per Rule 3 (8), a copy of the credit rating which is being obtained at least once in a year shall be sent to the Registrar of Companies along with the Return of Deposits in Form DPT-3. - Further, the credit rating shall not be below the minimum investment grade rating or other specified credit rating for fixed deposits. It shall be obtained from any one of the approved credit rating agencies as specified for Non-Banking Financial Companies in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998, as amended from time to time. **4. Charge Creation on Assets Necessary if the Deposits are Secured:** Every company which accepts secured deposits from the public shall within thirty days of such acceptance, create a charge on its assets. The amount of charge shall not be less than the amount of deposits accepted. The charge shall be created in favour of the deposit holders in accordance with the prescribed rules. In respect of creation of security, Rule 6 states that the company accepting secured deposits shall create security by way of charge on its tangible assets only. The other notable points are: - The company cannot create charge on intangible assets (i.e. goodwill, trademarks, etc.). - Total value of security should not be less than the amount of deposits accepted and interest payable thereon. - The market value of assets subject to charge shall be assessed by a registered valuer. - The security shall be created in favour of a trustee for the depositors on specific movable and immovable property of the company. **5. Tenure for which Deposits can be Accepted:** A company is not permitted to accept or renew deposits (whether secured or unsecured) which is repayable on demand or in less than six months. Further, the maximum period of acceptance of deposit cannot exceed thirty-six months. **Exception to the rule of tenure of six months:** For the purpose of meeting any of its short-term requirements of funds, a company may accept or renew deposits for repayment earlier than six months subject to the condition that- - **Such deposits shall not exceed ten per cent. of the aggregate of the paid-up share capital, free reserves and securities premium account of the company; and** - **Such deposits are repayable only on or after three months from the date of such deposits or renewal.** **6. Appointment of Trustee for Depositors:** Following provisions are required to be observed in this respect: - One or more trustees for depositors need to be appointed by the company for creating security for the deposits. - A written consent shall be obtained from the trustees before their appointment. - A statement shall appear in the advertisement with reasonable prominence to the effect that the trustees for depositors have given their consent to the company for such appointment. - The company shall execute a Deposit Trust Deed in Form DPT-2 at least seven days before issuing the circular or circular in the form of advertisement. - No person including a company that is in the business of providing trusteeship services shall be appointed as a trustee for the depositors, if the proposed trustee: - Is a director, key managerial personnel or any other officer or an employee of the company or of its holding, subsidiary or associate company or a depositor in the company. - Is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such holding company. - Has any material pecuniary relationship with the company. - Has entered into any guarantee arrangement in respect of principal debts secured by the deposits or interest thereon. - Is related to any person specified in clause (a) above. No trustee for depositors shall be removed from office after the issue of circular or advertisement and before the expiry of his term except with the consent of all the directors present at a meeting of the board. In case the company is required to have independent directors, at least one independent director shall be present in such meeting of the Board. **7. Meeting of Depositors to be called by Trustee:** The trustee for depositors shall call a meeting of all