Accepting Deposits from Members explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Chapter V is the most punitive chapter in the Companies Act for a private company.
Section 76A carries a minimum fine on the company of ₹1 crore or twice the deposits accepted, whichever is lower — and imprisonment up to seven years for officers in default.
The chapter exists because unregulated deposit-taking has a long and ugly history in India. The practical consequence for an ordinary private company is that a routine funding arrangement — money from a member, a customer advance, share application money left un-allotted past sixty days — can slip into "deposit" territory and drag that entire penalty structure with it.
A private company cannot take deposits from the public, only from members under Section 73(2). But the exemption notification frees most private companies from the circular, the DPT-1 filing, the 20% reserve account and the security requirement — and lets them take up to 100% of capital plus reserves instead of 35%. DPT-3 still has to be filed. And the director's-loan declaration remains the single most important document you can have.
The prohibition, and the one route open to you
Section 73(1): no company shall invite, accept or renew deposits from the public except as provided in Chapter V. (Banking companies and RBI-registered NBFCs are outside this.)
Section 73(2): a company may accept deposits from its members, subject to a resolution in general meeting and to five conditions:
(a) issue a circular to members with the company's financial position, the credit rating obtained, the number of depositors and amounts due on previous deposits; (b) file that circular with the Registrar thirty days before issuing it; (c) by 30 April each year, deposit not less than 20% of the deposits maturing in the following financial year into a separate scheduled-bank deposit repayment reserve account; (d) certify no default in repayment of deposits or interest; (e) provide security, if any, including creating a charge.
Section 76 separately lets eligible public companies — net worth ₹100 crore+ or turnover ₹500 crore+ — take public deposits.
A private company cannot take deposits from the public at all. Section 2(68)(iii) bars any invitation to the public, and Section 76 is confined to eligible public companies. Your only route is Section 73(2) — your own members.
The relief most private companies actually get
The Section 462 notification disapplies clauses (a) to (e) for a private company in any of these categories:
(A) it accepts from members monies not exceeding 100% of the aggregate of paid-up share capital, free reserves and securities premium; or
(B) it is a start-up, for ten years from incorporation; or
(C) it satisfies all three of: (i) it is not an associate or subsidiary of any other company; (ii) borrowings from banks, financial institutions or any body corporate are less than twice paid-up capital or ₹50 crore, whichever is lower; and (iii) no default in repayment of such borrowings subsists when the deposit is accepted.
So no circular, no DPT-1 thirty days in advance, no 20% reserve account, no security.
But note what's left standing. The notification expressly says the company shall file the details of monies accepted with the Registrar — which means DPT-3 by 30 June every year, without exception. DPT-3 in full →
And the overarching condition applies as always: no default in filing under Section 92 or Section 137.
One more thing worth knowing. The general Rule 3(3) cap on member deposits is 35% of capital plus free reserves plus securities premium. A private company relying on category (A) can go up to 100%. That's a meaningful difference if you're funding growth from your own shareholders.
Most of your funding isn't a deposit at all
Section 2(31) defines "deposit" broadly, then excludes what Rule 2(1)(c) prescribes. The exclusions a private company leans on:
| Excluded receipt | Condition |
|---|---|
| From a director | Written declaration that the money isn't itself borrowed; disclosed in the Board's Report |
| From a relative of a director — private companies only | Same declaration, same disclosure |
| From any other company | Inter-corporate; no conditions |
| Bank or co-operative bank loan | — |
| PFI, insurance company or scheduled bank loan | — |
| Share application money | Allot within 60 days; if not allotted and not refunded within a further 15 days, it becomes a deposit |
| Advance for goods or services | Appropriated within 365 days of acceptance |
| Advance for immovable property | Adjusted under an agreement |
| Employee security deposit | Non-interest-bearing, not exceeding annual salary |
| Convertible note issued by a start-up | Single tranche of ₹25 lakh or more, convertible or repayable within 10 years |
| AIF, VCF, InvIT, REIT, Mutual Fund | — |
| Secured bonds or debentures, or debentures compulsorily convertible within 10 years | — |
The director's declaration is the single most important document in this whole area. Without it on file, dated at or before receipt, a director's loan is not excluded. Which makes it a deposit. Accepted without the Section 73(2) machinery. Which engages Section 76A.
That's a ₹1 crore floor and a seven-year exposure, for a founder putting money in to cover salaries. Get the declaration signed when the money arrives.
And note the asymmetry: the relative-of-a-director exclusion is available only to a private company. A public company can't use it at all.
If you do take deposits within the full framework
Where the relief isn't available, or you choose the full route:
- Ordinary resolution in general meeting.
- Credit rating, where required.
- Circular in Form DPT-1 to members with the prescribed particulars.
- File DPT-1 with the Registrar at least thirty days before issuing the circular.
- Deposit insurance, where applicable and available.
- Deposit repayment reserve — by 30 April each year, at least 20% of deposits maturing next year, in a separate scheduled-bank account. It cannot be used for anything but repaying deposits.
- Security and charge creation where secured, with CHG-1.
- Deposit receipts within 21 days of receipt or realisation of the cheque.
- Register of deposits at the registered office, preserved eight years from the year of the last entry.
- DPT-3 by 30 June, with the auditor's certificate.
- Repay on maturity; premature repayment permitted subject to the Rule 15 interest reduction.
The penalty
| Who | Consequence |
|---|---|
| The company | In addition to repaying the deposit and interest — a fine of not less than ₹1 crore or twice the deposits accepted, whichever is lower, up to ₹10 crore |
| Every officer in default | Imprisonment up to 7 years and a fine of ₹25 lakh to ₹2 crore |
And where the officer contravened knowingly or wilfully with intent to deceive the company, shareholders, depositors, creditors or the tax authorities — liability for fraud under Section 447.
Section 446B relief doesn't apply — this is a fine with imprisonment, not a penalty. And it's not compoundable where imprisonment and fine are both mandated. Full penalty chart →
Key takeaways
- A private company can never take public deposits. Members only, under Section 73(2).
- Most private companies escape clauses (a)–(e) entirely under category (A), (B) or (C).
- Category (A) also raises your ceiling from 35% to 100% of capital plus reserves.
- The exemption never removes DPT-3.
- The director's written declaration is the whole ballgame. Sign it at receipt.
- The relative-of-a-director exclusion is private-company-only.
- Share application money has a 60 + 15 day fuse.
- Section 76A starts at ₹1 crore and includes seven years' imprisonment. No 446B relief.
Read next
- Form DPT-3: Return of Deposits
- Exemptions and Carve-Outs for Private Companies
- Section 185: Loans to Directors
- DPIIT-Recognised Startups: Company Law Relaxations
- Penalties for Non-Compliance: Section-wise Chart
Disclaimer: The Deposit Rules are detailed, condition-bound and frequently amended. Positions stated as on 4 September 2026. The consequences of misclassification are severe — take professional advice before accepting any money that isn't clearly excluded.