Section 76A: Punishment for Contravention of Section 73 and 76

This article mainly focuses on section 76A of the companies act, 2013 which lays down punishment for violation of section 73 and 76 of the act.
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Introduction

Section 76A of Companies Act, 2013, is part of chapter V and primarily lays down rules with respect to acceptance of deposits by companies and this section lays down the penal clause for that chapter. This section lays down the punishment for violation of section 73 and 76 of the acts, which lays down prohibition on acceptance of deposits from the public, and acceptance of deposits from certain companies respectively. This analysis will briefly discuss the provisions of section 73 and 76 for better understanding of 76A and then discusses the punishment as stated by this section. 

Purpose of Section 76A

This new section as inserted by the Companies (Amendment) Act, 2015, provides for penal consequences for acceptance of deposits in contravention of the provisions of the Act and thus accordingly when a company:

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

This section provides penalty for contravention of provision 73 and 76 of companies’ act 2013. For better understanding of this section, it is important to understand section 73 and 76. Sections 73 and 76 of the Act regulate the deposits received by a company. While section 73 allows a company to accept deposits from members after complying with the requirements set out in sub-section (2) of section 73, section 76 permits deposits from the public after complying with the requirements spelt out in the said section. Section 73 lays down the following:

  • A company can, invite deposits from its members subject to the passing of a resolution in general meeting and subject to certain conditions as specified (a) issuance of a circular to its members including therein 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 such 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 being 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 (d) providing of deposit insurance has been omitted by the Companies (Amendment) Act, 2017. This is in view of the fact that 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 with (e) 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. Companies (Amendment) Act, 2017 further 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 thereon 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’’.
  • Section 73(2)(a) to (e) does not apply to private companies subject to conditions. Section 73(2) states that companies can accept deposits from members by passing a special resolution and by complying with such terms and conditions as are prescribed in section 73(2)(a) to (f) of the Act. With the 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, and (b) Such company shall file the details of monies so accepted to the Registrar in such manner as may be specified. 
  • This section, however, prohibits a company from inviting, accepting or renewing deposits from the public. However, following companies may invite, accept or renew deposits from the public: (i) banking company (ii) non-banking financial company (iii) such other company as the Central Government may specify (iv) public company having such net worth or turnover as may be prescribed.
  •  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, Section 73 of the act, 2013 have to be read with Companies (Acceptance of Deposits) Rules, 2014 and National Company Law Tribunal Rules, 2016 for its better understanding and implementation.

Section 76 of the act 2013 lays down the following provisions:

  • This new section enables a public company having a net worth of not less than one hundred crore rupees or a turnover of not less than five hundred crore rupees to accept deposits from the public in accordance with the provisions of section 73(2) of the Act and the Companies (Acceptance of Deposit) Rules, 2014. Such public company is required to obtain prior consent of the company in general meeting by means of a special resolution and is required to file the said resolution with the registrar of companies before making any invitation to the public for acceptance of deposits. Such a public company is defined as ”eligible company” under section 2(e) of the Companies (Acceptance of Deposit) Rules, 2014. Eligible company, which is accepting deposits within the limits specified under clause (c) of sub-section (1) of section 180, (borrowing powers) may accept deposits by means of an ordinary resolution. Pursuant to provisions of sub-section (2) of section 76 of the Act, the provisions of sections 73 and 74 shall, mutatis mutandis, apply to acceptance of deposits from public by eligible companies.
  • Such companies shall obtain the credit rating from a recognized credit rating agency for informing the public about such rating at the time of invitation of deposits from the public. The rating shall be obtained every year during the tenure of deposits. Every company accepting secured deposits from the public shall, within thirty days of such acceptance, create a charge on its assets of an amount not less than the amount of deposits accepted in favor of the deposit-holders in accordance with such rules as may be prescribed.

Situation Before Enactment of Section 76A

In the previous act of 1956, there was no similar section.

Application of the Section

This section basically comes into application, whenever there is contravention of either section 73 or 76 or both as section 76A provides penalty for the same.

Amendment

This section has been amended by the Companies (amendment) act, 2017. In clause (a) the words “one crore rupee” were substituted by words “one crore rupee or twice the amount of deposits accepted by the company, whichever is lower. Further in clause (b) the words “seven years or fine or both” were substituted by the words “seven years and fine”. It is evident that these amendments were made to make the provision more stringent.

Concluding Summary

This section lays down the punishment of contravention of two very important sections under companies act, 2013, that is section 73 and 76, which lay down the provision for prohibition or acceptance of deposits from public by companies respectively. The serious nature of punishment under 76A shows the need to adhere to the requirements of section 73 and 76 of the acts, 2013.

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