22 September, 2014

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The new Companies Act allows for acceptance of deposits from the public under section 76(1). However the ministry of corporate affairs has imposed a whole set of conditions on the same. Here you will get a clear picture of all the stipulations which a company is required to fulfill in order to accept deposits from public.
· It should be an eligible company. An eligible company is defined under Rule 2(e) of Companies (Acceptance of Deposits) Rules, 2014, as:
o A public company and,
o Having net worth of at least 100 Cr Rs OR Turnover of at least 500 Cr Rs and,
o That has passed special resolution in the general meeting for the said purpose, [Note: the company can also pass an ordinary resolution, if the amount to be borrowed is not exceeding the limits specified under section 180(1)(c). The limit under the said section is aggregate of its paid up share capital and free reserves, apart from temporary loans[i] obtained from the company’s bankers in the ordinary course of the business]. And,
o That has filed the above resolution with ROC before inviting deposits from public.
· Other requirements to be complied with as mentioned in Section 76(1) are as follows:
o Compliance with all the conditions and procedures as mentioned in section 73(2) and,
o Compliance with the rules that the Central Government in consultation with RBI prescribe and,
o Obtaining rating from a recognized credit rating agency. The rating shall be obtained w.r.t. net worth, liquidity and ability of the company to pay back deposits. Further, rating is to be obtained every year during the tenure of deposits and,
o If the deposits are secured: company accepting such deposits shall within 30 days of such acceptance, create a charge on its assets of an amount not less than the amount of deposits accepted. Charge is to be created in favor of the deposit holders in accordance with the appropriate rules under Rule 6 of Companies (Acceptance of Deposits) Rules, 2014 which are as follows:
§ The eligible company 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
§ The security (not being in the nature of a pledge) for deposits shall be created in favor of a trustee for the depositors on:
(a) specific movable property of the company, or
(b) specific immovable property of the company wherever situated, or any interest therein.
NOTE: For the definition of “deposit” and “depositor” refer Rule 2 of Companies (Acceptance of Deposits) Rules, 2014

[i] "Temporary loans" means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature. [section 180(1)(c)]

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