Section 73: Prohibition on Acceptance of Deposits from Public

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Section 73 of Companies Act, 2013, part of chapter V, dealing with provisions with respect to acceptance of deposits by companies, lays down the section for prohibition on acceptance of deposits from the public. This section provides that no company shall invite, accept or renew deposits from the public except in a manner provided under this chapter of the act, 2013. This section 73 allows a company to accept deposits from members after complying with the requirements as set out under this section.

The term ‘deposit’ has been defined under Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 and the exclusions / exceptions to the definition have been stipulated in Rule 2(1)(c)(i) (xiv) of the Companies (Acceptance of Deposits) Rules, 2014, which would be looked in detail in this analysis, to understand the basic concept of deposits and the provision governing the same under the act, 2013.

Purpose of Section 73

This section under the act, 2013 is very important and lays down following as supplemented by various other rules for the better understanding of this section:

  • This section provides that no company shall invite, accept or renew deposits from the public except in a manner and on conditions as provided under this section.
  • However, the said restriction according to this section, does not apply to banking company and non-banking financial institutions as defined in the Reserve Bank of India Act, 1934 and registered with the RBI, housing finance company registered with the national housing bank established under the National Housing Bank Act, 1987 and such other company as the central government in consultation with RBI may prescribe.
  • A company can, invite deposits from its members subject to the passing of a resolution in general meeting and subject to certain conditions specified below [sub-section (2) of section 73]:

a)     Issuance of a circular to its members including a statement showing the financial position of the company, the credit rating obtained, the total number of depositors, etc.

b)     Filing a copy of the circular, along with the necessary statement with the Registrar within thirty days before the date of issue of the circular.

c)      Depositing on or before the 30th day of April each year an amount not less than 20% of the amount of 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”. This account shall not be used for any other purpose.

d)      Providing deposit insurance has been omitted by the Companies (Amendment) Act, 2017. This is since none of the insurance companies is offering any products for covering company deposit default risks, hence the concept of deposit insurance has been done away. 

e)     Certifying that the company has not committed any default in the repayment of deposits accepted or payment of interest on such deposits. Further it provides that companies, which had defaulted in repayment of deposits, can also accept deposits after a cooling period of 5 years from the date of making good the default. 

f)      Providing security, if any for the due repayment of the amount of deposit or the interest, including the creation of such charge on the property or assets of the company. Where a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as “unsecured deposits’’.

  • Every deposit accepted by a company under this section has to be repaid with interest according to its contract’s terms and conditions.
  • Section 73(2)(a) to (e) above shall not apply to private companies subject to conditions as per notification by MCA. With this notification issued on 5th June, 2015, private companies can now accept deposits from their members by passing a resolution and subject to other requirements as mentioned below but without complying with the conditions referred to in clauses (a) to (f) of section 73(2): (a) The monies accepted does not exceed 100% of aggregate of the paid up share capital and free reserves (b) Such company shall file the details of monies so accepted to the Registrar in such manner as may be specified[1].
  • In case of failure to repay the deposit or any interest thereon the Tribunal, on the application of the depositor concerned, may order for repayment or pay for any loss or damage incurred by him.
  • This section must be read with Companies (Acceptance of Deposits) Rules, 2014. Under the rules “deposits” have been defined to include “any receipt of money by way of deposit or loan or in any other form, by a company, but does not include the amount as specified in sub clauses (i) to (xviii) of clause (c) of rule 2”[2]. Rule 3 of this rule provides for the terms and conditions of acceptance of deposits by the public, that every company has to adhere to and follow along with conditions under companies act, 2013. Rule 7 is another important rule providing that no company referred to in sub-section (2) of section 73 or any eligible company shall issue a circular or advertisement inviting secured deposits unless the company has appointed one or more trustees for depositors for creating security for the deposits. The company shall execute a deposit trust deed in Form DPT-2 at least seven days before issuing the circular or circular in the form of advertisement. Rule 13 states that the amount remaining deposited shall not at any time fall below fifteen per cent of the amount of deposits maturing, until the end of the current financial year and the next financial year.
  • Every company accepting deposits shall maintain at its registered office one or more separate registers for deposits accepted or renewed[3]. If any company referred to in sub-section (2) of section 73 or any eligible company inviting deposits or any other person contravenes any provision of these rules for which no punishment is provided in the Act, the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first day during which the contravention continues[4].
  • This section also must be read with National Company Law Tribunal Rules, 2016. Rule 73 of these rules; lay down the procedure for application by depositor for repayment of deposit or interest:
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a) Where a company fails to repay the deposits or any interest, an application under sub-section (4) of section 73 of the Act or section 45QA of the Reserve Bank of India Act, 1934, should be filed to the tribunal, in form no. NCLT. 11 (500-rupee fee). It should be accompanied by such documents.

b) A list of depositors shall be attached with the application. Where the company is the applicant, it shall file an affidavit stating that the list of depositors is correct, and that the estimated values as given in the list of the amount payable to such depositors are proper estimates of the values of such debts and claims.

c) The tribunal shall pass an appropriate order within a period of sixty days from the date of receipt of application.

d) The tribunal may, if it is satisfied, on the application filed, that it is necessary so to do, to safeguard the interests of the company, or the depositors, or in the public interest, direct, by order, the company to make repayment of such deposit or part within such time and subject to such conditions as may be specified in the order of the tribunal.

  • Section 76A of companies act, 2013 lays down punishment for contravention of this section. This section provides for penal consequences for acceptance of deposits in contravention of the provisions of the Act and thus accordingly when a company:

a) Accepts, invites or allows another person to accept or invite on its behalf any deposit which is in contravention to the provisions specified in the Act or rules under it or

b) Fails to repay the deposit or any interest, either in part or whole, within the time specified in the Act, or further time allotted by a Tribunal, it shall be subject to certain penalties.

c) The amount of penalties has been increased by the Companies (Amendment) Act, 2017 as under: (i) a minimum fine of Rs. 1 crore or twice the amount of deposits accepted by the company, whichever is lower and a maximum of Rs. 10 crores, in addition to the deposit or interest that is due and (ii) up to seven years imprisonment and fine between Rs. 25 lakhs to Rs. 2 crores, for every defaulting officer of the company. Earlier it was imprisonment or fine. Now with the substitution of the word ‘and’ the offence has been made non-compoundable. 

d) If proved that the defaulting officer of the company did so willfully, he will be liable for the offence of fraud, under this Act.

Situation Before Enactment of Section 73

This section corresponds to section 58A under the old act, 1956. As per the act, 2013 NBFC’s have been exempted and will not be covered by the provisions pertaining to acceptance of deposits. As per act, 2013 approval of shareholders will be required for acceptance of deposits. Further certain additional new conditions need to be satisfied such as creation of deposit repayment reserve account, provision of deposit insurance in the prescribed manner, etc. Further, where the Company does not secure or partially secure the deposits, then the deposits should be termed as “unsecured deposits’ ‘ and will be quoted in every circular, form, advertisement, document etc. related to invitation or acceptance of deposits. Concept of small depositors has been dispensed with under the act, 2013. Under the act, 2013. Tribunal has no power to take any Suo motu action ordering the repayment of deposits. The act 2013 has brought in quite a few well-needed changes with respect to this provision.

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Application of Section 73

This section basically comes when a company accepts deposits from the public or its members. This section provides restrictions and certain conditions that need to be adhered to by any company while accepting deposits.


This section has been amended by Companies (Amendment) act, 2017. This section has only been amended once since its incorporation under companies act, 2013. Section 73(2)(c) was substituted by this amendment by a new provision which now provides for a separate bank account called deposit repayment reserve account in which a sum not less than twenty percent of the amount of its deposits maturing during the financial year have to be kept by the company.  Further clause 73 (2)(d) was omitted and in clause (e) the word such deposits were substituted by “Such deposits and have such 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”.

Cases at a Glance

Following are the cases pertaining to this section:

  • Bimla Kothari v. Unitech Ltd[5]: In this case the court held that the term ‘every deposit’ means and includes all previous deposits accepted by the company. Maintainability of the petitions under sub-section (4) of section 73 for failure to repay public deposits after the date of maturity of the deposits cannot be challenged contending that the term ‘deposits’ means ‘deposits’ taken under the Companies Act, 2013 that is on or after the commencement of that Act and the deposits accepted earlier cannot come under the preview of the ‘deposits’ as mentioned in sub-section (1) of section 73.

Concluding Summary

This section clarifies that any company, who wishes to accept deposits from the public needs to adhere to the conditions laid down in this section and in this chapter. This section also lays down various exceptions. This section is supplemented by various rules, which provide flesh and blood to this section, giving the procedure requirements that a company needs to adhere to when accepting deposits from the public.

[1] MCA General Notification dated 5th June 2015

[2] Companies (Acceptance of Deposits) Rules, 2014, r. 2(c) (MCA).

[3] Companies (Acceptance of Deposits) Rules, 2014, r. 14 (MCA).

[4] Companies (Acceptance of Deposits) Rules, 2014, r. 21 (MCA).

[5] Bimla Kothari v. Unitech Ltd. (2017) 136 CLA 74

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