CA > Inter > Paper 2 – Skim Notes

Chapter 5 : Acceptance of Deposits by Companies

Overview

  • Definition of deposit and its implications
  • Regulatory framework for acceptance of deposits
  • Terms and conditions for accepting deposits from members
  • Categories of deposits and exemptions
  • Requirements for eligible companies to accept public deposits
  • Provisions regarding defaults in repayment
  • Penalties for contravention of deposit provisions
  • Understanding the roles of trustees in deposit acceptance

Key Topics

Definition of Deposit

  • Deposit includes any receipt of money by way of deposit or loan or in any other form by a company.
  • Excludes amounts as prescribed in consultation with the Reserve Bank of India.
  • Repayments of deposits are time-bound and can be secured or unsecured.
  • Deposits can be accepted under joint names not exceeding three persons and can be nominated.
  • Private companies can only accept deposits from their members while public companies can accept from both.

Deep Dive

  • The term ‘deposit’ was clarified in Section 2(31) of the Companies Act, 2013.
  • Importance of distinguishing between a deposit and other financial instruments for regulatory compliance.

Regulatory Framework

  • Sections 73 to 76A of the Companies Act, 2013 describe the acceptance of deposits.
  • Companies (Acceptance of Deposits) Rules 2014 govern the acceptance and management of these deposits.
  • The provisions are enacted to regulate acceptance by non-banking and non-financial companies.
  • Exemptions apply to certain financial companies like banks and housing finance companies.

Deep Dive

  • Analysis of how the rules aim to protect the interests of depositors.
  • Impact of regulatory changes on corporate financing strategies.

Acceptance from Members

  • A company may accept deposits from its members if a resolution is passed in a general meeting.
  • A circular with financial statements and terms must be issued to members before acceptance.
  • Compliance with notification and filing requirements with the Registrar of Companies is crucial within 30 days.
  • Companies must maintain a deposit repayment reserve account with at least 20% for upcoming maturing deposits.

Deep Dive

  • Explore the implications of withholding clear guidelines in companies’ circulars.
  • Consequences of failing to comply with notification and filing requirements.

Categories and Exemptions

  • Certain amounts are exempt from being classified as deposits, including government guarantees and amounts from banks.
  • Public companies need to have a net worth or turnover criteria to qualify as eligible for public deposits.
  • Procedural exemptions exist for specific types of private companies under the Act.

Deep Dive

  • Examination of other financing alternatives that companies might consider under similar regulatory constraints.
  • Review of how different forms of capital influence the decision to accept different types of deposits.

Eligible Companies and Public Deposits

  • An eligible company must have a net worth of at least ₹100 crore or turnover of ₹500 crore to accept public deposits.
  • Requires a special resolution to be passed and filed before inviting public deposits.
  • Must obtain a credit rating from a recognized agency and disclose it publicly.

Deep Dive

  • Data analysis on the financial health of eligible companies post list of regulations.
  • Explore the impact of credit ratings on the attractiveness of deposits for investors.

Repayment and Defaults

  • Failure to repay deposits can lead to criminal penalties including fines and imprisonment for company officers.
  • Depositors can approach the National Company Law Tribunal for resolution in case of defaults.
  • Companies must have robust systems for managing repayment obligations.

Deep Dive

  • Examine case studies of companies that defaulted and the subsequent impact on investor confidence.
  • Analysis of how public perception shapes compliance regarding repayments.

Trustee Regulations

  • Companies accepting public deposits must appoint trustees for depositors, ensuring security and compliance.
  • Trustees must not have conflicts of interest and need to oversee the interests of depositors effectively.
  • Trustees are required to call meetings if a majority of depositors signal concern.

Deep Dive

  • Understanding how trustee’s roles influence transparency and accountability within deposit arrangements.
  • Comparative analysis of trustee performance across companies with varying deposit ethics.

Summary

This chapter on acceptance of deposits by companies provides a comprehensive overview of the regulatory landscape, essential definitions, and procedures that ensure compliance and protect the interests of depositors. Companies are obligated to follow strict guidelines when accepting deposits from both members and the public, including passing necessary resolutions, disclosing financial information, and safeguarding the deposits through trustees and reserve accounts. Additionally, consequences for non-compliance emphasize the importance of rigorous adherence to deposit regulations to maintain trust and integrity within corporate financing practices.