Section 58A of Companies Act, 1956 has put restrictions on acceptance of deposits by any company subject to rules being prescribed. Accordingly, Companies (Acceptance of Deposits) Rules, 1975 were prescribed which lay down various regulations and procedures for acceptance of deposits by companies. The important provisions of the Rules are summarised as under :

1. The rules do not apply to banking companies and financial companies for which RBI have separately prescribed rules.

2. Deposit means deposit of money with, and includes any amount borrowed by, a company, but does not include certain types of borrowings; viz., amount received :

1. from Government Local Authority, Foreign Government or any other foreign person, citizen or authority or any amount guaranteed by Government.

2. from Banks.

3. from various Government or semi-Government financial Cos. or Corporation/insurance Cos. or a public financial institution as may be notified by the CG.

4. from any other company.

5. by way of security deposit from an employee.

6. by way of security or advance from any purchasing, selling or other agents in the course of business or any advance received against orders for supply of goods, properties or services.

7. by way of subscription to any share, stock, bonds or debentures pending allotment. Any amount received by way of calls in advance so long as this is not repayable under the Articles.

8. in trust or in transit.

9. also refer to amendments in Section 3(1)(iii)(d) and S. 43A by the Companies Amendment (Act), 2000.

10. by a company from a director, relative of a director or member out of his own funds (that is not borrowed or accepted from others). The director/relative of a director/shareholder concerned however has to furnish a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others. Also refer to amendments in section 3(1)(iii)(d) and section 43A by the Companies (Amendment) Act, 2000.

11. by issue of bonds or debentures secured by the mortgage of any immovable property or with an option to convert them into shares. Provided the amount does not exceed the market value of property.

12. from promoters by way of unsecured loans pursuant to agreement with financial institutions for loans so long as such loans are outstanding.

3. The company shall not accept any deposit which is repayable :

1. on demand

2. on notice

3. before 6 months or after 36 months from date of deposit.

4. Limits up to which deposits can be accepted :

5. W.e.f. March 1st, 1997 no company shall accept or renew any deposits in any form if it is in default in the repayment of any deposit or part thereof and any interest thereon in accordance with the terms and conditions of such deposits.

6.1 Paid-up capital and free reserves should be as per latest audited balance sheet.

6.2 Free reserves do not include

1. reserve created for payment of future liability, for depreciation or for bad debts

2. reserve created by revaluation of assets

6.3 Free reserves include

1. balance in share premium account

2. capital or debenture redemption reserve

6.4 Following have to be reduced from capital and reserves:

1. accumulated balance of loss

2. balance of deferred revenue expenditure

3. intangible assets if disclosed in Balance Sheet

7.1 Interest can be paid at the maximum rate of interest prescribed by the RBI that the NBFCs can pay on their public deposits.

7.2 If a deposit is prematurely repaid, the company can pay interest at a rate 2% less than that which the company would have paid had the deposit been accepted for the period for which the deposit had run.

7.3 Brokerage can be paid as under :

Period of deposit	Maximum rate
up to one year	1%
between one and two years	1.5%
beyond two years	2%