Can Your Company Accept Deposits? Section 73, Members-Only Deposits and Section 76

Every private company that borrows from friends, relatives or shareholders eventually asks one question: is this money a "deposit" that the Companies Act regulates? Chapter V starts with a near-total ban and then opens two doors: deposits from members under section 73(2) and, for qualifying public companies only, public deposits under section 76. A private company has one door. Walk through it correctly, because the Act attaches a heavy penalty to getting it wrong (s.76A).

Legal basis: Companies Act, 2013, ss.73, 75, 76 and 76A; Companies (Acceptance of Deposits) Rules, 2014, rules 3, 16 and 16A as amended.

What to do now

Before taking any money from a member: check whether the receipt is a "deposit" at all. The Acceptance of Deposits Rules, 2014 carve out certain receipts under rule 2(1)(c), and the Form DPT-3 return recognises "transactions by a company not considered as deposit as per rule 2(1)(c)" (rule 16 and rule 16A, Form DPT-3 as substituted by G.S.R. 663(E), 29 August 2022). The list of those exempt receipts is not reproduced here; read the current rule 2(1)(c) before classifying any receipt.
If it is a deposit: pass a resolution in general meeting and complete every s.73(2) step below before the money comes in.
Return: Form DPT-3 (return of deposits) is the prescribed return under rules 16 and 16A, and rule 3(3) requires companies accepting member monies under its provisos to file the details in Form DPT-3. Confirm the current due date on the MCA portal.
Consequence of getting it wrong: a fine on the company of not less than "one crore rupees or twice the amount of deposit accepted by the company, whichever is lower" up to ten crore rupees, and for every officer in default imprisonment up to seven years and a fine of ₹25 lakh to ₹2 crore (s.76A).

Have a CA review your facts before you act or file.

The starting point is prohibition, not permission

"On and after the commencement of this Act, no company shall invite, accept or renew deposits under this Act from the public except in a manner provided under this Chapter" (s.73(1), Companies Act 2013). The proviso exempts "a banking company and non-banking financial company as defined in the Reserve Bank of India Act, 1934" and "such other company as the Central Government may, after consultation with the Reserve Bank of India, specify in this behalf".

Note the three verbs: invite, accept, renew. A company that never advertised but quietly rolled over last year's shareholder advance has still "renewed" a deposit if the money is a deposit. Compliance must cover renewals with the same rigour as fresh receipts.

The one door open to private companies: deposits from members

A company may, "subject to the passing of a resolution in general meeting and subject to such rules as may be prescribed in consultation with the Reserve Bank of India, accept deposits from its members" on agreed terms, "subject to the fulfilment of the following conditions" (s.73(2)). The lender must be a member, the members must resolve in general meeting, and every listed condition must be met:

(a) Circular to members. A circular "including therein a statement showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in such form and in such manner as may be prescribed" (s.73(2)(a)). Earlier deposit history goes into the circular.
(b) Filing with the Registrar. "filing a copy of the circular along with such statement with the Registrar within thirty days before the date of issue of the circular" (s.73(2)(b)). The filing precedes the issue; a circular backdated after the money arrives reverses the statutory order.
(c) Deposit repayment reserve. "depositing, on or before the thirtieth day of April each year, such sum which shall not be less than twenty per cent. of the amount of its deposits maturing during the following financial year and kept in a scheduled bank in a separate bank account to be called deposit repayment reserve account" (s.73(2)(c), as substituted with effect from 15 August 2018).
(e) No-default certification. "certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits and where a default had occurred, the company made good the default and a period of five years had lapsed since the date of making good the default" (s.73(2)(e)). A company with a live default cannot use this route; one that cured a default waits five years from the cure date.
(f) Security and labelling. The company must provide "security, if any" for repayment. Where it "does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as 'unsecured deposits' and shall be so quoted in every circular, form, advertisement or in any document related to invitation or acceptance of deposits" (s.73(2)(f) and proviso).

There is no clause (d); it was omitted by the 2018 amendment.

How much can a private company take from members

Section 73(2) is "subject to such rules as may be prescribed", and the numbers sit in rule 3 of the 2014 Rules. Rule 3(3) caps member deposits, together with other deposits outstanding, at 35 per cent of the aggregate of paid-up share capital, free reserves and securities premium account. Two provisos relax this for private companies:

A private company may accept from its members "monies not exceeding one hundred per cent. of aggregate of the paid up share capital, free reserves and securities premium account", and must "file the details of monies so accepted to the Registrar in Form DPT-3" (rule 3(3), first proviso, as substituted in 2017).
The maximum limit "shall not apply" to a private company that is a start-up, "for ten years from the date of its incorporation", or to a private company that is not an associate or subsidiary of another company, whose borrowings from banks, financial institutions or bodies corporate are less than twice its paid-up share capital or fifty crore rupees, whichever is less, and that has not defaulted in repaying those borrowings (rule 3(3), second proviso, as amended in 2020).

Rule 3(1) separately restricts deposits repayable on demand or at short notice. Read rule 3 as a whole before fixing terms.

Repayment, the reserve lock and the depositor's remedy

"Every deposit accepted by a company under sub-section (2) shall be repaid with interest in accordance with the terms and conditions of the agreement" (s.73(3)). If the company fails to repay, "the depositor concerned may apply to the Tribunal for an order directing the company to pay the sum due or for any loss or damage incurred by him as a result of such non-payment and for such other orders as the Tribunal may deem fit" (s.73(4)). The remedy runs directly to the Tribunal.

The reserve is locked: the deposit repayment reserve account "shall not be used by the company for any purpose other than repayment of deposits" (s.73(5)).

Section 74 and section 75: older deposits and fraud

Its liability sits on a company that fails to repay "the deposit or part thereof or any interest thereon referred to in section 74 within the time specified in sub-section (1) of that section". Section 74 deals with deposits accepted before the commencement of the Act. Where it is proved that those deposits "had been accepted with intent to defraud the depositors or for any fraudulent purpose", every officer responsible "shall, without prejudice to the provisions contained in sub-section (3) of that section and liability under section 447, be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by the depositors" (s.75(1)). Section 75(2) allows any person, group of persons or association of persons who incurred loss from non-repayment to take action.

For a deposit accepted today under s.73(2), the penalty provision to read is s.76A, below, not s.75.

Why section 76 does not help a private company

"Notwithstanding anything contained in section 73, a public company, having such net worth or turnover as may be prescribed, may accept deposits from persons other than its members subject to compliance with the requirements provided in sub-section (2) of section 73 and subject to such rules as the Central Government may, in consultation with the Reserve Bank of India, prescribe" (s.76(1)). Two safeguards attach: the company must obtain a rating "from a recognised credit rating agency" for every year of the deposit tenure (first proviso), and a company accepting secured deposits from the public must "within thirty days of such acceptance, create a charge on its assets of an amount not less than the amount of deposits accepted" (second proviso). The Chapter applies "mutatis mutandis" (with necessary changes) to such deposits (s.76(2)).

The opening words matter most: "a public company". A private company cannot use this door on the strength of its net worth. The prescribed net worth and turnover thresholds are not stated in this article; check the current rules before relying on s.76.

The penalty: section 76A

Where a company "accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 or section 76 or rules made thereunder", or fails to repay within the time specified (or such further time as the Tribunal allows under section 73), then:

the company, "in addition to the payment of the amount of deposit or part thereof and the interest due", is punishable with fine of not less than "one crore rupees or twice the amount of deposit accepted by the company, whichever is lower" and up to ten crore rupees (s.76A(a)); and
every officer in default is punishable with imprisonment up to seven years and fine of not less than ₹25 lakh and up to ₹2 crore (s.76A(b)).

If the officer "has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities", the officer is liable for action under section 447 (proviso to s.76A).

Three patterns that decide the outcome

The compliant member deposit: general-meeting resolution, circular with full past-deposit disclosure, filing thirty days before issue, 30 April reserve deposit, no-default certification, honest "unsecured" labelling, repayment per agreement, and the DPT-3 filing. The accidental public deposit: money from a non-member friend routed through a shareholder's account; the question is whose money it really is, not which bank account it passed through. The unpaid rollover: a matured balance left running without a fresh circular and resolution; because s.73(1) bars renewal outside Chapter V, the conditions re-attach to the renewal.

FAQ

Can a private company accept deposits from the public?
No. Section 73(1) bars it except in the manner provided in the Chapter, and the s.76 public-deposit route is open only to "a public company, having such net worth or turnover as may be prescribed".

Whose deposits can a private company accept?
"Deposits from its members", after "a resolution in general meeting" and compliance with the s.73(2) conditions and rule 3.

When must the circular reach the Registrar?
"Within thirty days before the date of issue of the circular" (s.73(2)(b)): before, not after.

How much must sit in the deposit repayment reserve?
Not less than twenty per cent of deposits maturing in the following financial year, deposited on or before 30 April each year in a separate scheduled-bank account (s.73(2)(c)), usable only for repayment of deposits (s.73(5)).

What can an unpaid depositor do?
Apply to the Tribunal for an order directing payment of the sum due or for loss or damage from non-payment (s.73(4)).

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