Acceptance of Deposits by Companies: Compliance Under Section 73

Companies, especially growing small and medium businesses, often find themselves needing extra funds. Beyond the initial capital injection or day-to-day revenue, resources are required for expansion, purchasing new equipment, or managing operational cash flow. One avenue companies might explore is accepting money in the form of deposits. However, this isn’t as simple as asking for a loan from anyone. The acceptance of deposits by companies in India is a highly regulated activity, primarily governed by Section 73 of the Companies Act, 2013, and the accompanying Companies (Acceptance of Deposits) Rules, 2014. Understanding and adhering to these regulations, ensuring acceptance of deposits compliance India, is absolutely critical. Non-compliance can lead to hefty penalties, legal complications, and significant reputational damage. This post aims to guide small business owners, directors, and other stakeholders through the essential rules surrounding companies accepting deposits section 73, ensuring you stay compliant and avoid potential pitfalls.

What Qualifies as a ‘Deposit’ Under the Companies Act, 2013?

Before diving into the restrictions and compliance requirements, it’s crucial to understand what the law considers a ‘deposit’. The definition significantly impacts whether the stringent rules of Section 73 apply to the funds your company receives. Getting this wrong can inadvertently lead to non-compliance.

Defining Deposits Explained

Section 2(31) of the Companies Act, 2013, defines ‘deposit’ quite broadly. It includes any receipt of money by a company, whether through a deposit, a loan, or in any other form. The Companies (Acceptance of Deposits) Rules, 2014, further elaborate on this. Essentially, if a company receives money from any source, it’s prima facie considered a deposit unless it specifically falls under one of the listed exclusions. The intention behind this broad definition is to cast a wide net and protect the interests of those lending money to companies, ensuring that companies don’t circumvent regulations by simply calling a deposit something else. This wide scope underscores the importance of carefully evaluating every inflow of funds that isn’t straightforward revenue or share capital.

Key Exclusions: What is NOT Considered a Deposit?

Fortunately, the law also recognizes that companies receive funds for various legitimate business reasons that shouldn’t be treated as regulated deposits. Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014, provides a vital list of exclusions. Understanding these is key to navigating the landscape of acceptance of deposits and ensuring compliance under section 73 India. If the money received falls squarely into one of these categories, the stringent conditions of Section 73 generally do not apply. Common exclusions include:

• Government Funds: Any amount received from the Central Government, a State Government, or guaranteed by them, or received from a local authority or statutory authority.
• Foreign Sources: Amounts received from foreign governments, international banks, multilateral financial institutions, foreign bodies corporate, foreign citizens, etc., subject to Foreign Exchange Management Act (FEMA) regulations.
• Bank Loans: Amounts received as loans or facilities from banking companies or notified financial institutions.
• Commercial Paper: Amounts received against the issue of commercial paper or other instruments issued per Reserve Bank of India (RBI) guidelines.
• Inter-Corporate Loans: Amounts received by a company from another company.
• Share Application Money: Amounts received towards share application money, provided the shares are allotted within 60 days of receipt. If not allotted within this period, it must be refunded within 15 days, failing which it will be treated as a deposit.
• Director Loans: Amounts received from a person who, at the time of receipt, was a director of the company OR a relative of a director of a private company. Crucially, the director/relative must furnish a written declaration stating the funds are not being given out of borrowed money or funds accepted from others.
• Bonds/Debentures: Amounts raised by issuing secured bonds or debentures (first charge on assets) or compulsorily convertible non-secured debentures within 10 years. Unsecured debentures listed on a stock exchange are also excluded.
• Employee Security Deposits: Amounts received from employees, not exceeding their annual salary, as a non-interest-bearing security deposit.
• Business Advances: Amounts received in the ordinary course of business as an advance for the supply of goods or provision of services, provided such goods/services are supplied/rendered within 365 days from the date of acceptance of the advance. Other specific business-related advances (e.g., for immovable property under agreement) also have conditions.
• Promoter Contributions: Amounts brought in by promoters as unsecured loans in pursuance of stipulations by lending institutions.
• Nidhi Companies/Chit Funds: Amounts received by Nidhi companies or from subscriptions to Chit Funds.

(For official details, refer to the Companies (Acceptance of Deposits) Rules, 2014, available on the Ministry of Corporate Affairs website: https://www.mca.gov.in/)

Section 73 Explained: Restrictions on Acceptance of Deposits

Now that we understand what constitutes a deposit (and what doesn’t), let’s look at the core restrictions imposed by Section 73 of the Companies Act, 2013. The fundamental principle is the protection of the general public’s money.

The General Rule: Prohibition on Public Deposits

Section 73(1) lays down a clear and strict rule: no company (subject to specific exceptions outlined below and provisions under Section 76 for eligible companies) shall invite, accept, or renew deposits from the public. This prohibition applies broadly to both private and public limited companies. The rationale is straightforward – the government aims to prevent companies from soliciting funds from the general public without adequate safeguards, oversight, and disclosures, thereby protecting unsuspecting individuals from potentially risky investments. This rule forms the bedrock of deposit regulations in India.

The Exception: Accepting Deposits from Members

While deposits from the general public are largely prohibited, Section 73(2) carves out an exception allowing certain companies to accept deposits from their own members. However, this is not an open door; it comes with stringent conditions that must be met meticulously. This primarily applies to public companies meeting certain criteria (sometimes referred to as ‘eligible companies’ when read with Section 76 provisions, although Section 73(2) itself has a specific process for member deposits). The key conditions for this specific type of acceptance of deposits include:

• Shareholder Approval: Passing a resolution (Ordinary Resolution required by Section 73(2)) in a general meeting authorizing the acceptance of deposits from members.
• Circular to Members: Issuing a detailed circular to all members containing information such as the company’s financial position, credit rating obtained, total deposits already accepted, amount proposed to be accepted, and other particulars as prescribed in the Deposit Rules.
• ROC Filing: Filing a copy of the circular, signed by a majority of the directors, with the Registrar of Companies (ROC) using Form DPT-1 before it is issued to members.
• Deposit Insurance: Providing deposit insurance coverage for the principal amount and interest, as may be prescribed. (Applicability might depend on the company type and scheme).
• Deposit Repayment Reserve Account: Setting aside at least 20% of the amount of deposits maturing during the upcoming financial year into a separate bank account named ‘Deposit Repayment Reserve Account’ by April 30th each year. This fund can only be used for repaying deposits.
• Certification: Certifying that the company has not defaulted in the repayment of deposits accepted either before or after the commencement of the Companies Act, 2013, or the interest due thereon.
• Security (Optional but often required): Providing security for the repayment of the deposit and interest, if the scheme involves secured deposits.

Meeting these conditions is non-negotiable for companies accepting deposits section 73 provisions related to member funds.

Private Companies and Acceptance of Deposits

The rules for private limited companies deserve special mention. As stated earlier, private companies are strictly prohibited from inviting or accepting deposits from the public. Their primary avenues for receiving funds that might resemble deposits but are excluded (and thus permissible) are:

1. Loans from Directors: Provided the director gives the required declaration that the funds are not borrowed.
2. Loans from Relatives of Directors: Again, subject to the relative providing a declaration that the funds are not sourced from borrowings or deposits from others.
3. Loans from Other Companies: Inter-corporate loans are excluded.
4. Loans from Banks/Financial Institutions.

Can private companies accept deposits from their members? Generally, under Section 73(2)’s main provisions, the stringent conditions (like circulars, credit ratings, deposit insurance) make it impractical or unavailable for most private companies. However, certain exemptions have been granted via MCA notifications over time. For instance, specific types of private companies (like startups meeting certain criteria or those not exceeding specified thresholds of paid-up capital and borrowings) might be allowed to accept deposits from members up to certain limits (e.g., 100% of paid-up capital and free reserves) without fulfilling all the rigorous conditions of Section 73(2). However, these exemptions are specific and subject to change. It’s crucial for private companies to seek professional advice before accepting any funds from members purported to be deposits, to ensure they comply with the prevailing regulations on deposit acceptance India. Relying solely on director/relative loans (with proper declarations) is often the safer route.

Detailed Compliance Checklist for Section 73 (Where Applicable)

For companies that are eligible and choose to accept deposits from their members under Section 73(2), meticulous compliance is essential. Missing even one step can invalidate the process and attract penalties. Here’s a breakdown of the key requirements:

Procedural Requirements for Member Deposits

• Resolution: An Ordinary Resolution must be passed by the members in a general meeting to authorize the company to accept deposits from its members, up to the limits specified (typically linked to paid-up capital and free reserves).
• Circular to Members (Form DPT-1): This is a critical document. It must be issued to all members and contain extensive details as laid out in the Companies (Acceptance of Deposits) Rules, 2014. Key contents include:
  • Company’s financial statements (latest audited financials).
  • Credit rating obtained from a recognized agency (not older than one year).
  • Details of existing deposits.
  • Particulars of the deposit scheme (amount, tenure, interest rate).
  • Information about deposit insurance, charge creation (if any).
  • Declaration by the Board of Directors regarding the company’s financial health and compliance.

  The circular, once approved, is valid for six months from the closure of the general meeting OR until the date of the next Annual General Meeting (AGM), whichever is earlier. Meticulous preparation and issuance are vital for compliance under section 73 India.

• ROC Filing: A copy of the circular (Form DPT-1) must be filed with the Registrar of Companies (ROC) at least 30 days before it is issued to the members. This ensures regulatory oversight before the company approaches its members for deposits.

Financial Safeguards

• Deposit Repayment Reserve: This is a non-negotiable financial discipline. By April 30th each year, the company must deposit an amount equivalent to at least 20% of the deposits maturing during the current financial year into a separate bank account (scheduled bank) designated as the Deposit Repayment Reserve Account. This fund is earmarked solely for repaying these maturing deposits.
• Deposit Insurance: The rules require deposit insurance to be taken, protecting depositors up to a certain limit in case the company fails to repay. The specific requirements and extent of coverage are detailed in the Deposit Rules. This provides an essential safety net for members depositing funds.
• Credit Rating: The company must obtain a credit rating from a recognized credit rating agency (like CRISIL, ICRA, CARE, etc.). This rating reflects the company’s creditworthiness concerning the proposed deposit scheme. The rating obtained must be mentioned in the circular (Form DPT-1) and in any advertisements. A low rating might deter members from investing.
• Taxation Services in India: Companies must also ensure their taxation and financial policies align with regulations, especially when dealing with complex transactions such as deposits. Learn more about our taxation services.

Ongoing Compliance

• Register of Deposits: Every company accepting deposits must maintain a Register of Deposits at its registered office. This register should contain details of each depositor, the amount received, date of receipt, rate of interest, repayment date, and other prescribed particulars. It must be preserved for at least eight years from the financial year in which the latest entry is made.
• Filing Return of Deposits (Form DPT-3): This is arguably one of the most critical ongoing compliance requirements related to deposits and similar transactions. Form DPT-3 is an annual return that must be filed with the ROC by June 30th every year. Its purpose is twofold:
  1. To report details of all outstanding deposits covered under Section 73 or Section 76.
  2. To report particulars of all outstanding receipts of money or loans that are not considered deposits (i.e., the exempted categories listed earlier).

  Crucially, every company (except Government companies) which has any outstanding loan or amount not treated as a deposit must file Form DPT-3. This means even if your company has only taken loans from directors (with declaration) or inter-corporate loans, and has zero regulated deposits, you still need to file Form DPT-3 declaring these exempted amounts. This requirement applies uniformly across India, whether you are ensuring accepting deposits compliance Mumbai, Delhi deposits acceptance compliance, or section 73 compliance Bangalore. Failure to file DPT-3 on time attracts penalties.

Penalties for Non-Compliance with Section 73

The Companies Act, 2013, takes non-compliance with deposit regulations very seriously, reflecting the potential risk to stakeholders. The penalties are stringent and can impact both the company and its management significantly.

Monetary Penalties for the Company

If a company accepts deposits, invites deposits, or fails to repay deposits or interest thereon in violation of Section 73 or the rules made thereunder, Section 73(4) prescribes significant penalties. The company shall, in addition to paying the deposit amount and due interest, be punishable with a fine which shall not be less than one crore rupees or twice the amount of deposit accepted by the company, whichever is lower, but which may extend to ten crore rupees. For failure to repay deposits specifically, Section 76A imposes even stricter penalties, including a minimum fine of one crore rupees or twice the deposit amount (whichever is lower), extending up to ten crore rupees. These substantial fines underscore the financial risk of non-compliance.

Liability of Officers in Default

The responsibility doesn’t stop with the company. Every officer of the company who is in default is also personally liable. Under Section 73(4), such officers can be punished with imprisonment for a term which may extend to seven years OR with a fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both. Under Section 76A (related to contravention of Section 73 or 76), the penalty for officers in default includes imprisonment up to seven years AND a fine of not less than twenty-five lakh rupees, extending up to two crore rupees. This personal liability, including potential jail time, highlights that section 73 compliance for Indian companies is a critical board-level responsibility. ‘Officer in default’ typically includes directors and key managerial personnel involved in the decision-making or compliance process.

Repayment Orders and Other Consequences

Beyond monetary penalties and imprisonment, non-compliance can trigger other adverse actions. The National Company Law Tribunal (NCLT) has the power, upon application by depositors, to order the company to repay the defaulted deposits forthwith. Failure to comply with NCLT orders can lead to further penalties. Furthermore, regulatory violations related to the acceptance of deposits can severely damage the company’s reputation among investors, lenders, and the public. Directors found guilty of offences involving deposit acceptance or repayment could potentially face disqualification from holding directorship positions in other companies. The cumulative impact of these consequences makes strict adherence to the law paramount.

Conclusion

Navigating the regulations surrounding the acceptance of deposits is a critical aspect of corporate compliance in India. Section 73 of the Companies Act, 2013, clearly restricts companies, especially private limited companies, from accepting deposits from the public. While specific provisions allow certain companies to accept deposits from members, this is subject to rigorous procedural and financial safeguards, including shareholder resolutions, detailed circulars (Form DPT-1), ROC filings, maintaining a Deposit Repayment Reserve Account, and potentially obtaining credit ratings and deposit insurance.

Understanding the numerous exclusions – what isn’t considered a deposit, such as declared loans from directors or inter-corporate loans – is equally crucial for day-to-day operations. Furthermore, the mandatory annual filing of Form DPT-3 for all companies having outstanding loans or receipts (whether classified as deposits or exempted) by June 30th is a key compliance checkpoint. The penalties for non-compliance are severe, encompassing hefty fines for the company and potential imprisonment plus fines for officers in default. Strict adherence to acceptance of deposits compliance India is therefore not just a legal formality but a business imperative.

The complexity of these rules means professional guidance is often necessary. If your company operates anywhere in India, including major hubs like Mumbai, Delhi, Bangalore, or Chennai, and you need assistance with understanding Section 73, ensuring compliance, filing Form DPT-3 accurately, or interpreting specific Chennai company deposits regulations (which fall under the same national framework), expert help is advisable. Contact TaxRobo’s experienced professionals today for reliable financial and legal guidance tailored to your company’s needs. You can reach out to us for an Online CA Consultation.

Frequently Asked Questions (FAQs)

Q1. Can a private limited company in India accept deposits from the general public?

A: No, Section 73 of the Companies Act, 2013, generally prohibits private limited companies from inviting or accepting deposits from the public. They can primarily receive funds classified as non-deposits, such as loans from directors (with declaration), loans from relatives of directors (private co. specific, with declaration), inter-corporate loans, and bank loans. Acceptance of deposits from members by private companies is subject to specific exemptions and limits (if applicable based on current notifications) and is generally more restricted than for eligible public companies.

Q2. Is a loan provided by a director to their company considered a deposit under Section 73?

A: No, a loan from a director is specifically excluded from the definition of ‘deposit’, provided the director gives the company a written declaration at the time of giving the loan, stating that the amount is not being given out of funds acquired by the director through borrowing or accepting loans or deposits from others. This declaration is crucial for compliance regarding acceptance of deposits.

Q3. What is Form DPT-3, and who needs to file it?

A: Form DPT-3 is an annual return that companies must file with the Registrar of Companies (ROC). It serves two main purposes: reporting details of outstanding regulated deposits and reporting particulars of outstanding loans, advances, or other receipts of money that are not considered deposits (exempted categories). Every company (except Government companies) that has any such outstanding amount (deposit or exempted receipt) as of March 31st of a financial year must file Form DPT-3 by June 30th of that year.

Q4. What are the main penalties for non-compliance with Section 73 regarding the acceptance of deposits?

A: Penalties for non-compliance are severe. The company can face substantial fines (minimum ₹1 crore or twice the deposit amount, whichever is lower, potentially up to ₹10 crore). Officers in default (like directors) can face imprisonment (up to 7 years) and significant personal fines (minimum ₹25 lakh, potentially up to ₹2 crore). The NCLT can also order immediate repayment of deposits with interest.

Q5. Do the rules for acceptance of deposits differ significantly between major cities like Mumbai, Delhi, or Bangalore?

A: No, the core legal framework – Section 73 of the Companies Act, 2013, and the Companies (Acceptance of Deposits) Rules, 2014 – applies uniformly across all of India. The fundamental regulations on deposit acceptance India are the same regardless of the city. While administrative procedures for filing forms like DPT-3 involve interacting with the respective regional ROC office (e.g., ROC Mumbai, ROC Delhi, ROC Bangalore), the legal requirements, definitions, prohibitions, conditions for acceptance of deposits, and penalties for non-compliance remain consistent nationwide.

If you are a new entrepreneur, you might also consider setting up an accounting system for your small business to ensure accurate financial tracking and compliance management.