Acceptance of Deposits (Section 73-76): A Practical Guide#
When a company needs working capital, banks aren't the only option. The Companies Act allows companies to accept "deposits" from their own shareholders (members) and, in specific cases, from the general public.
However, because the history of corporate India is littered with deposit scams (where promoters took money from the public and vanished), the rules governing the acceptance of deposits—Sections 73 to 76 of the Companies Act, 2013—are incredibly strict.
What is a "Deposit"?#
The Act defines "deposit" broadly: it includes any receipt of money by way of deposit or loan. However, the true focus of the law is on what is excluded from this definition. Money received from the government, foreign banks, bank loans, inter-corporate loans, and share application money are not considered deposits. Almost anything else borrowed by the company falls into the deposit trap.
1. Accepting Deposits from Members (Section 73)#
Any company (Private or Public) can accept deposits from its own shareholders, subject to strict conditions:
The Limits#
- A company cannot accept deposits if the total amount of outstanding deposits (including the new ones) exceeds 35% of the aggregate of its Paid-up Share Capital, Free Reserves, and Securities Premium Account.
- (Note: Specified IFSC Public/Private companies and certain eligible startups have relaxed limits).
The Conditions#
To borrow from your own shareholders, you must:
- Pass an Ordinary Resolution in a general meeting.
- Issue a formal circular to members detailing the company's financial position and credit rating.
- File the circular with the ROC (Form DPT-1) 30 days before issuing it.
- Maintain a "Deposit Repayment Reserve Account" in a scheduled bank and deposit at least 20% of the deposits maturing in the following financial year.
(Exemption: Private companies borrowing an amount less than 100% of their Paid-up capital + Free reserves + Premium are exempt from issuing the circular and creating the reserve account, vastly simplifying the process).
2. Accepting Deposits from the Public (Section 76)#
This is heavily restricted. Only "Eligible Public Companies" can invite and accept deposits from the general public.
Who is Eligible?#
A public company having:
- A Net Worth of not less than ₹100 Crores, OR
- A Turnover of not less than ₹500 Crores.
The Limits#
- From Members: Up to 10% of (Paid-up capital + Free Reserves + Premium).
- From Public: Up to 25% of (Paid-up capital + Free Reserves + Premium). (Government companies have a higher combined limit of 35%).
The Strict Conditions#
Eligible companies must obtain a strict credit rating every year, create a charge on company assets (secured deposits), and comply with all the stringent circular and reserve requirements mentioned above.
The DPT-3 Mandate#
Whether you accept formal deposits or only hold money that is exempted from the definition of a deposit (like a standard bank loan or director's loan), every single company (except government companies) must file an annual return of deposits in Form DPT-3 by June 30th every year.
Accepting deposits outside the boundaries of Sections 73-76 is a non-compoundable offense. The company must refund the money with 18% interest, and the directors can face imprisonment of up to 7 years. Borrow wisely, and document carefully.