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CA Intermediate · Corporate and Other Laws

Acceptance of Deposits by Companies: CA Intermediate Study Guide

A deposit is money a company receives that it must repay, unless the rules exempt it. Under Chapter V, a company can invite deposits only in the prescribed manner. To solve questions, first check whether the money is a deposit, then eligibility, the circular, the 20% repayment reserve, and finally penalties.

What this chapter covers

This chapter is about Chapter V of the Companies Act, 2013. Section 73 starts with a prohibition: no company shall invite, accept or renew deposits from the public except in the manner this Chapter provides. The proviso says this prohibition in Section 73(1) does not apply to banking companies, NBFCs (as defined in the RBI Act, 1934) and other companies the Central Government specifies after consulting the RBI. Everything else in the chapter explains how a company can accept deposits lawfully, and what happens if it does not repay.

The chapter has two layers. The Act gives the skeleton: a general meeting resolution, a circular filed with the Registrar, a deposit repayment reserve account, no unremedied default, and security (or a clear label that deposits are unsecured). The Companies (Acceptance of Deposits) Rules, 2014 fill in the detail, such as what counts as a deposit, the exempted categories, limits and tenure. Questions usually test both layers, so learn them together.

The chapter links to other parts of Paper 2. Under Section 179(3)(d), the power to borrow monies is exercised by the Board through a resolution passed at a Board meeting. The proviso to Section 179(3) lets the Board, by a resolution passed at a meeting, delegate this power (clauses (d) to (f)) to a committee of directors, the managing director, the manager or another principal officer. So you must separate Board powers from the members' resolution that Section 73(2) needs for deposits from members. It also connects to charges, borrowing powers, Tribunal powers and officer-in-default liability. Each of these shows up in case-based questions. Where this guide says a point comes from the Rules, check the exact figure in your ICAI study material and the amendments for your attempt.

This chapter is short, rule-based and predictable, which makes it a good place to secure marks in both the 30 MCQ marks and the 70 marks of written answers. MCQs pick up on single facts such as the 30-day filing window, the 20% reserve and the 30 April date. Written questions give a company situation and ask whether it can accept deposits, so a provision-facts-conclusion answer earns full marks. Students who learn the conditions as a checklist rarely lose marks here, and the penalty figures are easy to remember once you fix them.

Acceptance of Deposits by Companies: topics in the order to study them

  1. 1Meaning of Deposit and Exempted DepositsStart here, because every other rule applies only if the money is a deposit; many questions are won by spotting an exempted receipt.
  2. 2Eligibility and Conditions for Accepting DepositsNext, learn who may accept from members and from the public, and the conditions in Sections 73 and 76, as the whole chapter rests on them.
  3. 3Circular, Advertisement and Return of DepositsOnce you know the conditions, learn the paperwork that carries them out: the circular, filing with the Registrar and the return.
  4. 4Deposit Insurance, Repayment and Deposit Repayment Reserve AccountThen study how deposits are safeguarded and repaid, including the 20% reserve and its restricted use.
  5. 5Powers of Tribunal and Penalties for DefaultFinish with the consequences of failure, as penalties make sense only after you know the duties they enforce.

How to prepare Acceptance of Deposits by Companies

This chapter rewards a checklist method. Build one flow from 'is it a deposit?' to 'what if the company defaults?', and practise applying it to short facts.

  1. Read Sections 73, 74, 75 and 76 once from the Act, slowly, and underline every number, date and percentage.
  2. Make a one-page checklist of the Section 73(2) conditions: members' resolution, circular, filing with the Registrar 30 days before issue, 20% deposit repayment reserve by 30 April, no default (or default made good and five years lapsed), and security or an 'unsecured' label.
  3. Learn the exempted deposits and the Rules' limits and tenure from your ICAI material, and write them in a separate list, as the Act does not contain them.
  4. Separate Section 73 (members) from Section 76 (public): a public company with the prescribed net worth or turnover, a yearly credit rating, and a charge within 30 days for secured deposits.
  5. Make a small table for yourself of the default provisions. Section 73(4): for deposits accepted under the Act, the depositor may apply to the Tribunal. Section 74: deposits accepted before the commencement of the Act and not repaid in time. Section 75: fraud and personal liability of officers.
  6. Solve past MCQs and practice questions. For written answers, use this format: state the provision, apply the facts, then give a clear conclusion in one line.
  7. Revise the numbers daily for a week: 30 days, 20%, 30 April, five years. Add the Section 74 figures for pre-commencement deposits: three months to file, one year to repay, and a fine of one crore to ten crore.

Common mistakes in Acceptance of Deposits by Companies

  • Applying the deposit rules to money that is an exempted receipt.

    Fix: Always begin with: is it a deposit, and is it exempted? Keep your list of exempted categories ready and check it first.

  • Mixing up Section 73 (deposits from members) and Section 76 (deposits from the public).

    Fix: Remember: Section 73 is the base set of conditions. Section 76 adds eligibility by net worth or turnover, a yearly credit rating and a charge for secured deposits.

  • Getting the numbers and dates wrong, such as 30 days, 20%, 30 April and five years.

    Fix: Write each figure with the event it belongs to, for example '30 April, 20%, maturing next year', and revise them daily.

  • Treating Section 74 as the general penalty for non-repayment of any deposit, or confusing Sections 73(4), 74 and 75.

    Fix: Section 73(4) is the remedy for deposits accepted under the Act: the depositor applies to the Tribunal. Section 74 covers deposits accepted before the commencement of the Act and carries the fine and imprisonment. Section 75 adds personal liability of responsible officers where deposits were accepted with intent to defraud.

  • Treating the deposit repayment reserve as a general fund.

    Fix: State in your answer that the account shall not be used for any purpose other than repaying deposits.

  • Writing a bare conclusion in case questions without citing the provision.

    Fix: Use provision, facts, conclusion. Name the section where you are sure of it, apply the facts, and end with a clear yes or no.

Last-day revision: Acceptance of Deposits by Companies

  • Section 73(1): no company shall invite, accept or renew deposits from the public except as Chapter V provides.
  • The proviso to Section 73(1) says the prohibition in Section 73(1) does not apply to banking companies, NBFCs (as defined in the RBI Act, 1934) and other companies the Central Government specifies after consulting the RBI.
  • Deposits from members need a resolution in general meeting and must meet the Section 73(2) conditions.
  • The circular must include the company's financial position, credit rating, number of depositors and amount due on previous deposits.
  • A copy of the circular is filed with the Registrar within thirty days before the date of issue of the circular.
  • Deposit repayment reserve: at least 20% of deposits maturing in the next financial year, deposited by 30 April in a separate account at a scheduled bank.
  • The deposit repayment reserve account can be used only to repay deposits.
  • Deposits that are not secured, or only partly secured, must be called 'unsecured deposits' in every circular, form and advertisement.
  • Section 73(4): if a company fails to repay a deposit accepted under Section 73(2), or interest on it, the depositor may apply to the Tribunal for an order to pay the sum due, for loss or damage, and for other orders the Tribunal thinks fit.
  • Section 76: an eligible public company can accept deposits from persons other than members, with a credit rating every year during the tenure.
  • Secured public deposits: create a charge on assets within 30 days of acceptance, for at least the deposit amount.
  • Section 74 applies only to deposits accepted before the commencement of the Act: file a statement with the Registrar within three months, and repay within one year, whichever is earlier. The Tribunal may allow further time.
  • Section 74 default (pre-commencement deposits not repaid in time): fine from ₹1 crore to ₹10 crore on the company; officers in default face up to 7 years' imprisonment or fine of ₹25 lakh to ₹2 crore, or both.
  • Section 75: where a Section 74 deposit is not repaid and it is proved the deposits were accepted to defraud, officers responsible are personally liable without limit, apart from Section 447.

Acceptance of Deposits by Companies practice questions

Acceptance of Deposits by Companies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Acceptance of Deposits by Companies: frequently asked questions

Can every company accept deposits from the public?

No. Section 73(1) prohibits it except in the manner Chapter V provides. Banking companies, NBFCs and other companies specified by the Central Government are outside this prohibition. Any other company may accept deposits from its members under Section 73(2), after a general meeting resolution and meeting the listed conditions. Only a public company with the prescribed net worth or turnover can accept deposits from persons other than its members under Section 76, and it must also obtain a credit rating every year.

What is the deposit repayment reserve account?

It is a separate bank account at a scheduled bank. By 30 April each year, the company must deposit at least 20% of the deposits maturing in the following financial year. Section 73(5) says it cannot be used for any purpose other than repaying deposits.

What happens if a company does not repay a deposit it accepted under the Act?

Under Section 73(4), the depositor may apply to the Tribunal for an order directing the company to pay the sum due or for any loss or damage from the non-payment. The Tribunal may also make other orders it considers fit. The Section 74 fine and imprisonment do not apply to these deposits.

What is the penalty under Section 74 for not repaying old deposits?

Section 74 applies only to deposits accepted before the commencement of the Act. The company must file a statement with the Registrar within three months and repay within one year, whichever is earlier, and the Tribunal may allow further time. If it still fails, it must pay the amount and interest and face a fine of ₹1 crore to ₹10 crore. Every officer in default faces imprisonment up to seven years, or a fine of ₹25 lakh to ₹2 crore, or both.

How is Section 179 related to deposits?

Section 179(3) says the power to borrow monies is exercised by the Board through a resolution passed at a Board meeting. The proviso allows the Board to delegate this power by a resolution to a committee, the managing director, the manager or another principal officer. Deposits from members also need a resolution in general meeting under Section 73(2). Keep these two approvals separate in your answers.