Acceptance of Deposits (Sections 73–76) →

Chapter V of the Companies Act, 2013 — Sections 73 to 76, read with the Companies (Acceptance of Deposits) Rules, 2014 — governs the single most dangerous thing a company can do with other people's money: take it as a deposit and promise to pay it back. The chapter is built on one architectural idea. A company may freely raise share capital and may borrow from banks and institutions, but the moment it solicits public savings in the form of deposits, the law treats those savers as a vulnerable class to be protected. Section 73 prohibits public deposits outright, then permits deposits from members on strict conditions; Section 74 cleans up the legacy of deposits taken under the old Act; Section 75 makes errant officers personally liable for fraud; and Section 76 opens a narrow window for large "eligible" public companies to reach the public at all.

For the judiciary and CLAT-PG aspirant the section is a favourite because it rewards precision. The numbers matter — twenty per cent, one hundred crore, five hundred crore, three years, seven years — and the structure was reorganised by the Companies (Amendment) Act, 2017, so the version in many older textbooks is wrong. This chapter sets out the scheme as it stands, anchored in the bare provisions and in the leading authority on the boundary between a deposit and a security, and links the regime to the broader architecture of the Act explored in our note on the introduction to the Companies Act.

Statutory scheme of Chapter V

Chapter V contains four operative sections and one penal section. Section 73 carries the prohibition on public deposits and the permission to accept deposits from members. Section 74 is transitional, dealing with deposits accepted before the 2013 Act came into force. Section 75 imposes personal liability for fraud in the acceptance of deposits. Section 76 permits a defined class of large public companies to accept deposits from the public. Section 76A, inserted later, supplies the punishment for contravention of Section 73 or 76. The detail of the regime — circulars, reserves, insurance, trustees, registers and returns — lives not in the sections but in the Companies (Acceptance of Deposits) Rules, 2014, framed under the rule-making power and in consultation with the Reserve Bank of India.

The chapter must be read against the backdrop of the Act's central premise — that a company is a separate legal person, distinct from its members, capable of contracting and of being sued, a doctrine traced in our note on the definitions of company, director and member. Because the company, and not its members, owes the deposit, the depositor's security depends entirely on the company's solvency. Chapter V is the legislative answer to that exposure: it builds a cushion of reserves, charges and disclosures around the deposit, and lifts the corporate shield through Section 75 where fraud is shown.

What counts as a deposit — Section 2(31) and Rule 2(1)(c)

Everything in Chapter V turns on the threshold question: is the money a "deposit"? Section 2(31) defines the term inclusively. A "deposit" includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India. The definition is deliberately broad — it captures not only an instrument labelled a "deposit" but any receipt of money, in any form, that functions as borrowing from outside the banking system.

The width of the definition is the point. If a company could escape Chapter V merely by calling a deposit a "loan" or an "advance", the protective scheme would be hollow. The inclusive language ensures that substance prevails over form: the court looks at whether money has in truth been received and is repayable, not at the label the parties have chosen. The exclusions in Rule 2(1)(c), examined next, are therefore the operative boundary — what is not excluded is a deposit, and a deposit triggers the full apparatus of Sections 73 to 76.

The exclusions from "deposit"

Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 lists the amounts that are not deposits. The list is long and exam-relevant, and the most important exclusions are these. Money received from the Central Government, a State Government, or a source whose repayment is guaranteed by government, is not a deposit. Money received from foreign governments, foreign banks, multilateral institutions, or as a foreign borrowing permitted under the Foreign Exchange Management Act, 1999, is excluded. Loans or facilities from any banking company, the State Bank of India, or a public financial institution are excluded, as is money raised through the issue of commercial paper.

Equally important for the practitioner are the inter-corporate and internal exclusions. Money received from another company — an inter-corporate deposit — is not a deposit for these purposes. Share application money or advance towards allotment of securities is excluded, provided the securities are allotted within sixty days; if they are not, and the money is not refunded within fifteen days thereafter, it becomes a deposit. An amount received from a director of the company — or, for a private company, from a relative of a director — is excluded if the director or relative furnishes a written declaration that the money is not given out of borrowed funds. Secured debentures, listed non-convertible debentures, and bonds or debentures compulsorily convertible into shares within ten years are excluded. So too are genuine advances for the supply of goods or provision of services, security deposits under a contract, and money raised by issue of convertible notes by a recognised start-up.

The architecture of the exclusions tells you what Chapter V is really aimed at. The State, the banks, the institutions, the directors-on-declaration, and bona fide trade counterparties are all treated as either trustworthy or capable of protecting themselves. What is left — money solicited from ordinary members or from the public at large — is the vulnerable category the chapter exists to protect.

Section 73(1) — the general prohibition

Section 73(1) states the core prohibition. On and after the commencement of the Act, no company shall invite, accept or renew deposits from the public except in a manner provided under Chapter V. The prohibition is general — it binds every company, private or public — and the only carve-out within the sub-section is for a banking company, a 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, specify. The point repeatedly tested is that non-banking financial companies are governed by the Reserve Bank's directions on acceptance of deposits and not by Chapter V — a carve-out flagged in our broader note on the salient features of the 2013 Act.

The structural effect is that public deposits are presumptively forbidden. A company may take deposits from its own members under Section 73(2), and only an eligible company may take deposits from the public under Section 76. Every other solicitation of public deposit is unlawful and attracts Section 76A.

Section 73(2) — deposits from members

Section 73(2) is the permission. A company may, subject to the passing of a resolution in general meeting and subject to the prescribed rules, accept deposits from its members on terms agreed by the company, provided it fulfils the conditions in clauses (a) to (f). Clause (a) requires the issue of a circular to members showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due in respect of any previous deposits. Clause (b) requires a copy of that circular, together with a statement, to be filed with the Registrar within thirty days before the date of issue of the circular.

Clauses (c) to (f) build the safety cushion. Clause (c) requires the deposit repayment reserve, discussed in the next section. Clause (e), as recast in 2017, requires the company to provide deposit insurance in the prescribed manner. Clause (f) requires the company to certify that it has not defaulted in the repayment of deposits or interest, and where a default occurred, that five years have elapsed since it was made good. A further clause requires the provision of security by way of a charge on the company's assets for the due repayment of the deposit and interest, failing which the deposit is treated as unsecured and must be so described in every circular and advertisement.

The deposit repayment reserve and the 2017 amendment

The deposit repayment reserve under Section 73(2)(c) is the most heavily tested numeric. The company must deposit, on or before the thirtieth day of April each year, a sum of not less than twenty per cent of the amount of its deposits maturing during the following financial year, in a separate account with a scheduled bank, to be called the deposit repayment reserve account. The reserve is ring-fenced — it cannot be used by the company for any purpose other than repayment of deposits.

Here the history matters, because older texts state the wrong figure. As originally enacted, clause (c) required a reserve of fifteen per cent and there was a separate clause (d) requiring the company to provide, on or before the thirtieth of April each year, for an amount not less than fifteen per cent of the deposits maturing in the current and next financial year, by way of deposit or investment in specified liquid securities. The Companies (Amendment) Act, 2017 reorganised this. It substituted clause (c) so that the deposit repayment reserve is now twenty per cent of deposits maturing in the following financial year, and it omitted the old clause (d) altogether. Clause (e) was simultaneously recast to require deposit insurance, the operation of which has been deferred by successive rule amendments. The exam-safe statement of the current law is therefore: one reserve, twenty per cent, by 30 April, in a scheduled bank.

Sections 73(3) and 73(4) — repayment and default

Section 73(3) provides that every deposit accepted under Section 73(2) shall be repaid with interest in accordance with the terms and conditions of the agreement. The deposit is a contractual debt, and the company's primary obligation is simply to honour the agreed terms. The protective machinery — the circular, the reserve, the insurance, the charge — exists to make that primary obligation collectible.

Section 73(4) supplies the depositor's remedy on default. Where a company fails to repay the deposit or part of it, or any interest, within the time specified in Section 73(2) or within such further time as may be agreed, 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 as a result of the non-payment, together with such order as the Tribunal deems fit. The remedy is therefore before the National Company Law Tribunal, not the ordinary civil court — a jurisdictional point that intersects with the wider scheme of company adjudication and the Tribunal's exclusive jurisdiction.

Section 74 — transitional deposits

Section 74 cleans up the past. When the 2013 Act came into force, many companies were holding deposits accepted under the Companies Act, 1956. Section 74(1) provides that where, before the commencement of the 2013 Act, any amount of deposit accepted by a company, or any interest, remained unpaid on such commencement or became due thereafter, the company shall file with the Registrar, within three months, a statement of all such deposits and the sums remaining unpaid, and shall repay them within three years of commencement or before the expiry of the period for which the deposits were accepted, whichever is earlier.

The number to watch is the repayment window. As enacted, Section 74(1)(b) said "one year". The Companies (Amendment) Act, 2017 substituted "three years", easing the transitional burden on companies. Section 74(2) empowers the Tribunal, on an application by the company and after considering its financial condition, the amount of the deposit and the interest payable, to allow further time as it considers reasonable for repayment. Section 74(3) supplies the sanction: failure to repay within the time allowed renders the company liable to a fine of not less than one crore rupees extending to ten crore rupees, and every officer in default to imprisonment up to seven years or a fine of not less than twenty-five lakh rupees extending to two crore rupees, or both.

Section 75 — damages for fraud

Section 75 is the fraud provision, and it is conceptually the most interesting because it pierces the corporate veil by statute. The general rule, traced from Salomon v. Salomon & Co., is that the company alone owes the deposit and the members and officers stand behind the shield of separate personality. Section 75 lifts that shield in a defined situation. Where a company fails to repay a deposit within the time specified in Section 74, or within the further time allowed by the Tribunal under Section 74(2), and it is proved that the deposits were accepted with intent to defraud the depositors or for any fraudulent purpose, every officer of the company who was responsible for the acceptance of the deposit becomes personally liable, without any limitation of liability, for all or any of the losses or damages incurred by the depositors.

Section 75(2) adds a class-action dimension. The action for such damages may be taken by any person, or any group of persons, or any association of persons who had incurred loss as a result of the failure to repay. The remedy thus mirrors the statutory class remedies elsewhere in the Act and gives small depositors collective standing they would not have at common law. The threshold, however, is fraud: mere inability to repay engages Section 73(4) and Section 76A, but personal unlimited liability under Section 75 requires proof of fraudulent intent at the point of acceptance.

Section 76 — eligible companies and public deposits

Section 76 is the narrow gateway through which the public, as opposed to members, may be reached. It provides that 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 of Section 73(2) and the prescribed rules, after obtaining the prior approval of its members by a special resolution and filing the resolution with the Registrar. The class of company so permitted is the "eligible company", defined in Rule 2(1)(e) of the 2014 Rules.

Two further requirements distinguish the Section 76 regime. First, an eligible company must obtain credit rating from a recognised credit rating agency every year and inform the Registrar of the rating obtained — the rating must reflect the prescribed minimum investment grade. Second, where the deposit is secured, the company must create a charge on its tangible assets within thirty days of acceptance, for an amount not less than the deposits accepted. The opening words of Section 76(2) make the Section 73 machinery apply mutatis mutandis to deposits accepted under Section 76, so the circular, reserve, repayment and default provisions carry over to the public-deposit context. The thresholds — net worth of one hundred crore or turnover of five hundred crore — are disjunctive and frequently tested; a company meeting either limb qualifies.

Section 76A — the penalty regime

Section 76A, inserted by the Companies (Amendment) Act, 2015 and refined by the 2017 amendment, is the deterrent that holds the whole chapter together. 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 conditions prescribed under Section 73 or Section 76, or where a company fails to repay a deposit or interest within the time specified or within the further time allowed by the Tribunal, two consequences follow.

First, the company shall, in addition to the payment of the amount of the deposit and the interest due, be punishable with a fine of not less than one crore rupees or twice the amount of deposit accepted by the company, whichever is lower, but which may extend to ten crore rupees. Second, every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years and with a fine of not less than twenty-five lakh rupees but which may extend to two crore rupees. A proviso adds a fraud overlay: if it is proved that the officer in default contravened the provisions knowingly or wilfully with the intention to deceive the company, its shareholders, depositors, creditors or tax authorities, he is additionally liable for action under Section 447 — the general fraud provision carrying imprisonment of not less than six months extending to ten years and a fine up to three times the amount involved.

Deposits and the deemed public offer — the Sahara line

The boundary between a regulated deposit and a public issue of securities was tested in the most consequential capital-markets decision of the decade, Sahara India Real Estate Corporation Ltd. v. Securities and Exchange Board of India, (2012) 10 SCC 603. Two unlisted public companies in the Sahara group raised over rupees twenty-four thousand crore from nearly three crore investors through Optionally Fully Convertible Debentures, claiming the issue was a private placement to "friends, associates and workers" and so outside the reach of the securities regulator. The Supreme Court rejected the characterisation. It held that once an offer of securities is made to fifty or more persons it is, by the legal fiction then in Section 67(3) of the Companies Act, 1956, deemed to be an offer to the public, attracting the public-issue regime and the jurisdiction of the Securities and Exchange Board of India. The Court directed the companies to refund the amounts collected with interest.

The case is the doctrinal hinge for the deposits chapter for two reasons. First, it illustrates the law's refusal to let large-scale solicitation of public savings escape regulation through clever labelling — the same substance-over-form instinct that animates the broad Section 2(31) definition of deposit. Second, it marks the regulatory frontier: where money is raised against debentures or other securities, the matter may fall into the securities regime rather than Chapter V, but where it is raised as a plain repayable deposit, Chapter V governs. The two regimes are complementary guardians of the same public, a theme that connects this chapter to the law on prospectus and public issue. For the foundational distinction between the company and the persons who run it — the platform on which both regimes rest — see our note on the incorporation of a company and its procedure.

MCQ angle — the recurring distinctions

Five propositions recur with high frequency. First, the deposit repayment reserve under Section 73(2)(c) is twenty per cent of deposits maturing in the following financial year, to be set aside by 30 April in a scheduled bank — and this was fifteen per cent before the 2017 amendment, with the old separate liquid-asset reserve in clause (d) now omitted. Second, an eligible company under Section 76 is a public company with net worth of at least one hundred crore or turnover of at least five hundred crore — the thresholds are disjunctive. Third, the transitional repayment window in Section 74(1) is three years, substituted for the original one year by the 2017 amendment.

Two further distinctions are worth carrying forward. The depositor's remedy for ordinary default lies before the Tribunal under Section 73(4); personal unlimited liability of officers lies under Section 75 but only on proof of fraud. And the penalty under Section 76A is a company fine of one crore (or twice the deposit, whichever is lower) up to ten crore, with officer imprisonment up to seven years — with an additional Section 447 fraud liability where the contravention is knowing or wilful. Candidates should also remember that banking companies and NBFCs are outside Chapter V altogether, being governed by the Reserve Bank.

Practical takeaways

Three points anchor the chapter for the practitioner and the examinee. First, always begin with the threshold question — is the receipt a "deposit"? Run it through the Rule 2(1)(c) exclusions before applying any of Sections 73 to 76; a director's loan on declaration, an inter-corporate deposit, or share application money allotted in time is simply outside the chapter. Second, keep the two permissions distinct: any company may take deposits from its members under Section 73(2) on the prescribed conditions, but only an eligible public company may reach the public under Section 76. Mixing the two is the classic error.

Third, match the remedy to the wrong. Ordinary non-payment triggers the depositor's application to the Tribunal under Section 73(4) and the company's exposure under Section 76A; fraudulent acceptance triggers the personal, unlimited liability of responsible officers under Section 75 and a possible Section 447 prosecution. The chapter rewards a candidate who can hold the numbers and the structure together — and it sits naturally alongside the constitutional architecture of the company explored across the rest of our Companies Act notes, from incorporation through capital to winding up.