Companies Act Section 73 — Prohibition on acceptance of deposits from public
CHAPTER V ACCEPTANCE OF DEPOSITS BY COMPANIES
Commercial / Corporate
Summary
Sub-section (1) prohibits a company from inviting, accepting, or renewing deposits from the public, except in the manner laid out in this Chapter of the Act. However, this prohibition does not apply to banking companies or non-banking financial companies as defined in the Reserve Bank of India Act, 1934, nor to any other company that the Central Government may specify after consulting the Reserve Bank of India.
Sub-section (2) allows a company to accept deposits from its own members, provided the company passes a resolution in a general meeting and follows any rules prescribed in consultation with the Reserve Bank of India. The terms and conditions of such deposits, including any security and the repayment of the deposit with interest, are to be agreed upon between the company and its members, but only if the company fulfils all the conditions listed in clauses (a) to (f).
Under clause (a) of sub-section (2), the company must issue a circular to its members that includes a statement showing its financial position, the credit rating obtained, the total number of depositors, the amount due towards deposits from any previous deposits accepted by the company, and any other particulars in the form and manner as prescribed.
Under clause (b) of sub-section (2), the company must file a copy of that circular along with the statement with the Registrar at least thirty days before the date the circular is issued.
Under clause (c) of sub-section (2), the company must deposit, on or before the thirtieth day of April each year, a sum that is not less than twenty per cent of the amount of its deposits maturing during the following financial year. This sum must be kept in a scheduled bank in a separate account called the deposit repayment reserve account.
Under clause (e) of sub-section (2), the company must certify that it has not committed any default in repaying deposits accepted either before or after the commencement of this Act, or in paying interest on such deposits. If a default did occur, the company must have made good the default and a period of five years must have lapsed since the date of making good the default.
Under clause (f) of sub-section (2), the company must provide security, if any, for the due repayment of the deposit amount or the interest on it, including by creating a charge on the company's property or assets. If the company does not secure the deposits or secures them only partially, then those deposits are termed unsecured deposits, and they must be quoted as such in every circular, form, advertisement, or any document related to the invitation or acceptance of deposits.
Sub-section (3) states that every deposit accepted by a company under sub-section (2) must be repaid with interest in accordance with the terms and conditions of the agreement referred to in that sub-section.
Sub-section (4) provides that if a company fails to repay a deposit, or part of it, or any interest on it, as required under sub-section (3), the depositor may apply to the Tribunal for an order directing the company to pay the sum due, or for any loss or damage incurred by the depositor as a result of the non-payment, and for any other orders the Tribunal deems fit.
Sub-section (5) states that the deposit repayment reserve account referred to in clause (c) of sub-section (2) cannot be used by the company for any purpose other than the repayment of deposits.
Official Text
(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 (2 of 1934) and to such other company as the Central Government may, after consultation with the Reserve Bank of India, specify in this behalf.
(2) A company may, subject to the passing of a resolution in general meeting and subject to such rules as may be prescribed in consultation with the Reserve Bank of India, accept deposits from its members on such terms and conditions, including the provision of security, if any, or for the repayment of such deposits with interest, as may be agreed upon between the company and its members, subject to the fulfilment of the following conditions, namely:—
(a) issuance of 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 such form and in such manner as may be prescribed;
(b) filing a copy of the circular along with such statement with the Registrar within thirty days before the date of issue of the circular; 1[
(c) depositing, on or before the thirtieth day of April each year, such sum which shall not be less than twenty per cent. 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;] 2* * * * *
(e) certifying that the company 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, 3[such deposits and where 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;] and
(f) providing security, if any for the due repayment of the amount of deposit or the interest thereon including the creation of such charge on the property or assets of the company:
Provided that in case where a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as “unsecured deposits” and shall be so quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits.
(3) Every deposit accepted by a company under sub-section (2) shall be repaid with interest in accordance with the terms and conditions of the agreement referred to in that sub-section.
(4) Where a company fails to repay the deposit or part thereof or any interest thereon under sub-section (3), the depositor concerned may apply to the Tribunal 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 Tribunal may deem fit.
(5) The deposit repayment reserve account referred to in clause (c) of sub-section (2) shall not be used by the company for any purpose other than repayment of deposits.