Page 185 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes (ix) any amount received from a director of the company or any amount received from a
relative of a director or member of a private company.
(x) any amount raised by issue of the bonds or debentures secured by the mortgage
of any immovable property of the company or with an option to convert them into
shares in the company. (However, in the case of such bonds or debentures secured by
the mortgage of any immovable property, the amount of such bonds or debentures
must not exceed the market value of such immovable property);
(xi) any amount brought in by the promoters by way of unsecured loans in pursuance

of stipulations of financial institutions subject to the fulfillment of the following

conditions; namely:
(a) the loans are brought in pursuance of the stipulation imposed by the fi nancial

institutions in fulfillment of the obligation of the promoters to contribute such
fi nance;
(b) the loans are provided by the promoters themselves and/or by their relatives
and not from their friends and business associates; and
(c) the exemption shall be available only till the loans of financial institutions are

repaid and not thereafter.
2. No company shall invite or accept any deposit except after the publication of an
advertisement specifying therein the financial condition, management structure and

other specified particulars of the company. The “renewal of deposits” are included in the

“acceptance of deposits” [Jagjivan Hiralal Doshi and Others v. Registrar of Companies (1989) 65
Comp. Cas. 553].
3. Every deposit by a company, unless renewed in accordance with the rules made under
s.58A, shall be repaid in accordance with the terms and conditions of such deposit.
4. The form of application shall contain a declaration by the depositor that the money is not
being deposited out of funds acquired by him by borrowing or accepting deposits from
any other person.

5. A company cannot accept or renew deposits payable on demand.
6. Also, a company cannot accept deposits repayable before 6 months. However, deposits for
less than 6 months may be accepted provided such deposits do not exceed 10% of the paid-
up capital and free reserves.
However, in no case shall a company accept deposits repayable before 3 months.
7. Ceiling on deposits. A company shall not accept deposits over and above the following
limits:

(a) 10 per cent of the paid up capital and free reserves, in case of deposits in the form
of any deposit against an unsecured debenture, deposit from a shareholder (not
being a deposit accepted by a private company from its shareholders) or any deposit
guaranteed by the Directors of the company;
(b) any other deposit exceeding 25 per cent of the aggregate of the paid-up share capital
and free reserves of the company.
8. No Government company shall accept any deposits in excess of 35 per cent of its paid-up
capital and free reserves.

9. Interest on deposits. A Company cannot pay rate of interest exceeding the maximum
rate of interest prescribed by the Reserve Bank of India, which is, at present, 11 percent
compounded on monthly basis.

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