What Are Deposits Under the Companies Act?
A 'deposit' under Section 2(31) of the Companies Act, 2013 includes any receipt of money by way of deposit, loan, or in any other form — but excludes 14 specific categories listed in Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 (called 'exempted deposits'). The distinction is critical: money classified as a 'deposit' triggers the full compliance framework of Chapter V (Sections 73-76) including deposit insurance, interest rate caps, liquid asset maintenance, and trustee appointment. Money classified as an 'exempted deposit' requires only DPT-3 reporting but not the full deposit compliance.
Chapter V was introduced to protect the public from companies that accept money from individuals (especially in small towns and rural areas) and then default on repayment — a pattern seen repeatedly with chit fund companies and unregulated financial entities like Sahara, PACL, and others.
Who Can Accept Deposits from Public?
Private companies: CANNOT accept deposits from the public — only from members (shareholders), directors, and their relatives. Even member deposits are technically 'exempted deposits' (not full deposits) if the director provides a declaration that funds are not borrowed.
Public companies (eligible): Can accept deposits from the public subject to FULL Chapter V compliance: deposit insurance, liquid assets, trustee appointment, credit rating, advertisement, circular, and ROC filings.
Government companies: Exempt from certain deposit provisions.
Nidhi companies: Can accept deposits only from members (regulated separately under Nidhi Rules).
NBFCs: Governed by RBI regulations for deposits — Companies Act deposit provisions do not fully apply.
The 14 Categories of Exempted Deposits — Rule 2(1)(c)
These are amounts received by a company that are NOT treated as deposits — exempted from Chapter V compliance (but must be reported in DPT-3):
| # | Category | Common Example |
|---|---|---|
| (i) | Amount from Central/State Government or guaranteed by them | Government grant, subsidy |
| (ii) | Amount from bank or financial institution | Bank term loan, OD, CC facility |
| (iii) | Amount from foreign government or international organization | World Bank loan, ADB funding |
| (iv) | Amount received against issue of commercial paper | CP issuance by large corporates |
| (v) | Amount received from secured debentures (listed on exchange) | Listed NCDs |
| (vi) | Share application money (allotted within 60 days) | Investment pending allotment |
| (vii) | Amount from director of company | Director loan to company |
| (viii) | Amount from inter-corporate loan (ICD) | Loan from sister company |
| (ix) | Amount received by Nidhi from members | Nidhi member deposits |
| (x) | Amount against issue of bonds/debentures (secured, SEBI-compliant) | Private placement of NCDs |
| (xi) | Amount from member/director/relative of director of PRIVATE company | Shareholder loan, director relative loan |
| (xii) | Business advance (appropriated within 365 days) | Customer advance for goods/services |
| (xiii) | Amount from employee (salary not exceeding annual salary) | Employee security deposit |
| (xiv) | Amount received in trust (escrow, imprest) | Escrow deposits, client money |
Full Deposit Compliance — Chapter V Requirements
For companies ACCEPTING public deposits (primarily eligible public companies):
1. Circular and Advertisement — Rule 4
Before accepting deposits: issue circular (DPT-1) to members and advertise in newspaper. The circular must contain: financial position, terms of deposit, deposit insurance details, credit rating, and risk factors. File DPT-1 with ROC at least 30 days before issuing circular.
2. Credit Rating — Rule 3
Obtain credit rating from a recognized credit rating agency (CRISIL, ICRA, CARE, India Ratings). Minimum investment-grade rating required to accept public deposits. Rating must be obtained annually and disclosed in the deposit circular.
3. Deposit Insurance — Rule 6
Company must obtain deposit insurance contract with an approved insurer within 30 days of circular issuance or before accepting deposits (whichever is earlier). Insurance must cover: principal amount + interest up to maturity. Insurer pays depositors if the company defaults.
4. Liquid Assets — Section 73(2)(c)
Company must maintain minimum 15% of amount of deposits maturing during the current and next financial year as liquid assets — deposited in a scheduled bank in a separate designated account. Liquid assets cannot be used for any purpose other than repayment of deposits. This ensures the company always has cash available for maturing deposits.
5. Interest Rate Cap — Rule 3(4)
Maximum interest rate on deposits: cannot exceed the prescribed maximum rate (currently: rate prescribed by RBI for NBFC deposits — approximately 12.5% for up to 12 months, 15% for longer tenures). Rate varies by tenure and is updated periodically.
6. Tenure — Rule 3(1)
Minimum tenure: 6 months. Maximum tenure: 36 months (3 years). Deposits cannot be repayable on demand (unlike bank savings accounts). Some companies can accept deposits up to 60 months with member approval.
7. Trustee Appointment — Section 73(2)(a)
If deposits exceed specified thresholds: appoint a deposit trustee (typically a scheduled bank or public financial institution) to protect depositors' interests. Trustee monitors compliance with deposit conditions.
Private Company — Practically Exempt from Public Deposits
Private companies cannot accept deposits from the PUBLIC. They can receive money from:
(a) Members (shareholders): exempted deposit under Rule 2(1)(c)(xi). No Chapter V compliance needed. Report in DPT-3.
(b) Directors: exempted deposit. Director must give declaration that funds are own funds (not borrowed). Report in DPT-3.
(c) Relatives of directors: exempted deposit. Director must give declaration. Report in DPT-3.
For most private companies: deposit compliance = filing DPT-3 annually (by June 30) reporting all exempted deposits outstanding.
Penalty for Non-Compliance — Section 76A
Violation of deposit provisions attracts severe penalties:
(a) Company: fine of minimum Rs. 1 crore, maximum Rs. 10 crore (yes, crore — not lakh)
(b) Every officer in default: imprisonment up to 7 years AND fine of Rs. 25 lakh to Rs. 2 crore
These are among the harshest penalties in the Companies Act — reflecting the legislative intent to prevent companies from endangering public savings. The severity was increased after major deposit scandals (Sahara, PACL, Rose Valley) that collectively defrauded millions of small depositors.
Repayment of Deposits — Section 74
If a company has accepted deposits that do NOT comply with Chapter V (irregular deposits): the company must repay them within 1 year from commencement of the Act or from the date of contravention (whichever is later), together with interest at the contracted rate. If the company fails to repay: the depositor can apply to NCLT for repayment order. NCLT can order repayment within a specified period and can also direct prosecution of officers.