How to accept deposits under section 73 of the Companies Act?

Discover how Chartered Accountants Udaipur ensures compliance with Section 73 of the Companies Act, promoting transparency and protecting depositor interests.

Section 73 of Companies Act 2013

Accepting deposits is a fundamental financial activity for many businesses. Section 73 of the Companies Act, 2013, provides the regulatory framework for this process, aimed at ensuring transparency and safeguarding depositors.           

1. An Overview of Section 73

    Purpose:

Section 73 regulates how companies can accept deposits from the public. Its primary goals are to:

• Ensure financial transparency.
• Protect the interests of depositors.
• Maintain the stability of companies engaging in deposit-taking activities.

    Key Provisions:

• Deposit Restrictions: Companies are prohibited from soliciting deposits from the public unless they meet specific regulatory requirements.
• Rules and Compliance: The Companies (Acceptance of Deposits) Rules, 2014, provide detailed guidelines on how to comply with Section 73, including reporting and documentation requirements.

2. Conditions for Accepting Deposits

    Applicability:

Under the Companies Act, 2013, companies are allowed to accept deposits from both their members and the general public. Sections 73 to 76 of the Act outline the rules governing this process, which apply to most companies with some exceptions:

• Banking companies.
• Non-Banking Financial Companies (NBFCs) as defined by the RBI Act, 1934.
• Any other companies that the Central Government, in consultation with the RBI, may specifically exempt.

     Eligibility:

• Public Companies: Must be a public company with a net worth of at least ₹100 crore or a turnover of ₹500 crore.
• Private Companies: Can only accept deposits from their own members (shareholders) and must adhere to specific conditions.

    Limitations:

• Minimum Financial Criteria: Companies must meet certain financial thresholds to qualify for accepting deposits.
• Deposit Caps: There are limits on the total amount of deposits a company can accept, ensuring that it does not overextend itself financially.

3. Key Requirements and Procedures

    Compliance Requirements:

• Registrar Filing: Before accepting deposits, companies must file a statement with the Registrar of Companies (ROC) detailing the terms and conditions of the deposits.
• Deposit Insurance: Companies must inform depositors that their deposits are not covered by deposit insurance.
• Financial Statements: Companies need to ensure that their financial statements are up-to-date and comply with applicable accounting standards.

    Documentation:

• Circular/Advertisement: Companies must issue a circular or advertisement outlining the terms of the deposit, including interest rates, maturity periods, and repayment conditions.
• Deposit Agreement: Each depositor must receive a formal agreement specifying the terms of their deposit.

4. Restrictions and Prohibitions

    Types of Deposits Not Allowed:

• Deposits from Relatives: Companies cannot accept deposits from the relatives of directors or shareholders unless specific conditions are met.
• Public Companies: There are additional restrictions for public companies regarding accepting deposits from the general public.

    Consequences of Non-Compliance:

• Penalties: Companies that fail to comply with Section 73 face significant penalties and legal consequences.
• Director Liability: Directors may be held personally liable for non-compliance, which can affect their personal reputation and financial standing.

5. Regulatory Framework and Amendments

    Rules and Regulations:

• Companies (Acceptance of Deposits) Rules, 2014: These rules provide comprehensive guidance on deposit acceptance, including necessary documentation and reporting standards.
• Regulatory Updates: Companies must stay informed about any amendments or updates to the regulations to ensure on going compliance.

6. Implications for Companies and Depositors

     For Companies:

• Financial Planning: Proper planning and management of deposit acceptance strategies are crucial for compliance with regulations.
• Building Trust: Adhering to the regulations helps build investor and depositor trust, which is essential for long-term business success.

     For Depositors:

• Due Diligence: It is essential for depositors to conduct thorough research before investing in company deposits to understand the terms and associated risks.
• Regulatory Protection: While regulations are designed to offer protection, depositors should be aware of the limits and safeguards provided by these regulations.

7. Conclusion

Section 73 of the Companies Act, 2013, is vital for regulating how companies accept deposits. It ensures that companies follow strict guidelines to protect depositors and maintain financial stability. A Company considering deposit acceptance or a depositor evaluating investment options, understanding these regulations should consult Chartered Accountants Udaipur to secure financial decisions.