Section 73 of Companies Act. Prohibition on acceptance of deposits from Public

The Companies Act, 2016 under Chapter – V provides for Acceptance of Deposits by Companies. Under Chapter V the Act provides for the provisions where a company is prohibited and on what grounds a company is provided prohibitions on accepatance of deposits from public, repayment of such deposits if made by such company before the commencement of the law, damages in cases of fraud and acceptance of deposits from public on how can be made by which companies.

Section 73 of the Companies Act, 2013 provides for provisions of regulating acceptance of public deposits. The major goal behind the proviosion of section 73 is to protect the interests of investors and ensure financial stability. Under the provisions of this section it is provided that companies must comply with certain rules and regulations when accepting deposits from the public. The essentils and its understanding that are provided under section 73 is important for both businesses and stakeholders to ensure compliance and avoid legal consequences. 

Section 73 provides a prohibition upon the companies to accept any deposits but U/S – 73 (1) it is mentioned that the section shall not apply to any company or establishment which is a banking company and a non-banking financial company (NBFC) and shall also not apply to such other company as the Central Government may, after consultation with the Reserve Bank of India (RBI), specify in this behalf. 

Section 73 provides for the provision that a company is prohibited to accept such deposits from any public in any form unless according to the provision is a banking, a non banking financial company or otherwise a company which after consultation with the Reserve Bank of India the Central Government may specify in such regard. Such provisions are made out in the subsection 3 of the Section – 73 of the Companies Act 2013 which provides the following rules for raising deposits by a company:

• There must be a submission of a detailed circular of the company within its members stating the financial statements, credit rating, number of depositors, and the amount due to previous depositors.
• A copy of the circular and such statement must be submitted to the registrar of companies within a thirty-day period.
• There must be a 20 percent submission of the deposited amount accrued in the upcoming financial year before April 30. However, these deposits must be held within a separate bank account.
• There must be an insurance policy linked with those deposits.
• The company has to make sure that there are no outstanding interests or repayments of deposits to the public. Besides, such a default can put a stay on the company for demanding deposits for the next five years.
• There must be a separate account of charge over the company’s assets (against deposits). Such deposits are known as ‘secured deposits. This provision also acts as a security against the deposited amount.

Section 73 (2)

Section 73 (2) of the Companies Act, 2013 provides that the company is required to submit a detailed circular to its members, providing information about the company’s financial statements, credit rating, number of depositors, and the amount due to previous depositors. This circular and the financial statement must be submitted to the registrar of companies within a thirty-day period. Additionally, the company must submit 20 percent of the deposited amount that has accrued in the upcoming financial year before April 30. These deposits must be held within a separate bank account. Furthermore, there must be an insurance policy linked with these deposits to provide security. The company is also obligated to ensure that there are no outstanding interests or repayments of deposits to the public. Any default in this regard can lead to a five-year prohibition on the company from demanding deposits. Moreover, the company must maintain a separate account of charge over its assets against the deposits, known as ‘secured deposits’. This provision acts as security against the deposited amount.

Section 73 (3)

Section 73 (3) of the Companies Act 2013 provides that a company under section 73(2) if has taken any amount from any such person the company is required to pay back the amount with such interest or within the parameters as the company has agreed upon at the time of receiving of the funds as per the agreements under section 73(2) of the companies Act, 2013. 

Section 73 (4)

Section 73(4) of the Companies Act 2013 provides that in case the Company fails to pay the amount so was accepted as deposit within accordance with Section 73 Sub-section 2 of the Companies Act, but fails to pay the said sum under sub-section 3 of Section 73 of the Act the person whom the company failed to pay, may approach the Tribunal to get an order from the Tribunal against the Company for the recovery of the said amount or sum or for any loss that may have incurred by him in pursuance of such non-payment and other orders as the Tribunal may deem fit.

Section 73 (5)

Section 74(5) of the Companies Act provides that under sub-section 2 of the subclause (C) the company is to use the Deposit Repayment Reserve Account  for the returning or repayment of deposits only and no other purposes should such account be used for.

Sahara India Real Estate Corporation vs Sebi vis-a-vis Section 73 of Companies Act

In the case of Sahara India Real Estate Corporation … vs Sebi on 29 November, 2012, where the company in question Sahara India raised funds through Optionally Fully Convertible Debentures (OFCDs) without complying with Section 73 of the Companies Act and other regulations. SEBI alleged that Sahara raised large deposits without complying with regulatory norms. Sahara contended that OFCD is a focused issue and does not fall under SEBI’s regulatory jurisdiction. The Supreme Court of India ruled in favour of SEBI, stating that OFCDs are true “securities” under the Securities and Exchange Board of India Act, 1992. Sahara was ordered by the Supreme Court of India to return the collected amount to investors along with interest to protect their interests. This case set a precedent for SEBI for its mandate to regulate financial institutions and other NBFCs to protect the interests of the investors and stakeholders of the Company.

Conclusion: Section 73 of the Companies Act 2013 provides a comprehensive framework for protection of the interests of investors and stakeholders of a company by imposition of regulations on the Company limiting its capabilities to accept deposits from Public and if it requires to accept, has comprehensive rules mentioned under the Act in Chapter – V. The provisions have, though protected the interests of the stakeholders of the company there are quite more changes that require to be imposed in advance so that incidents can be avoided rather than changes are brought after. 

FAQs

Q: What is Section 73 of the Companies Act 1956?

A: Section 73 of the Companies Act 1956 is about the allotment of shares and debentures to be dealt in on stock exchange. It states that every company intending to offer shares or debentures to the public by the issue of a prospectus must obtain permission from one or more recognized stock exchanges before such issue. It also lays down the conditions and penalties for accepting and repaying deposits from the public. 

Q. What is rule 73 of the Companies Act?

A: Rule 73 of the Companies Act provides a comprehensive guidelines a company has to adhere to. Rules states under Section – 73 provide that a company unless a banking institution or a NBFC or otherwise specified by the Central Government after consultation with the Reserve Bank of India cannot accept deposits from the public.

Q. Who is eligible for DPT 3?

A: DPT-3 is annual return which is required to be filed every year by Companies having any amount of loan or advances as on 31st March within 90 days of end of financial year i.e. upto 30th June.

Q. Can a shareholder give loan to company?

A: Yes a shareholder can give loan to a company but in such a case it should be noted that in such a case the shareholder of the company becomes the creditor to the company and in such a case the company is liable to pay the shareholder the credit due within stipulated time and with the interests which should be at the time such shareholder provides the credit should be written in the form of an agreement and should be adhered to the terms of such by the company. 

Q. What are exempted deposits?

A: Certain deposits that are aimed at increasing the savings or investments are made exempt of certain regulations by law which would not have such benefit in normal deposits are called exempted deposits.