Page 188 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 9: Prospectus

The Company Law Board shall, on receipt of the intimation, exercise on its own Notes
motion, powers conferred upon it by sub-section (9) of s. 58A and pass an appropriate
order within a period of 30 days from the date of receipt of intimation from the
company.
The Company Law Board may pass the above order after giving the small depositors
an opportunity of being heard. However, it shall not be necessary for a small depositor
to be present at the hearing of the proceedings.
2. Prohibition on companies to accept further deposits. A company shall not at any time,
accept further deposits from ‘small depositors’ unless each small depositor, whose
deposit has matured, had been paid the amount of the deposit and the interest accrued
thereupon. This prohibition will, however, not apply in the following cases:

(i) where such deposit has been renewed voluntarily by the small depositor; or
(ii) where repayment of the deposit has become impracticable due to the death of
the small investor or a competent court or authority has stayed its repayment.

3. Advertisement and application form. Where a company has defaulted in repayment
of deposit or part thereof or any interest thereon to a small depositor, it shall state
in every future advertisement and application form for inviting deposits from the
public, the total number of small depositors and amount due to them in respect of
which such default has been made.

4. Waiver of interest due to depositors. Where any interest accrued on deposits of the
small depositors has been waived, the fact of such waiver shall be mentioned by the
company in every advertisement and application form inviting deposits issued after
such waiver.
5. Loan for working capital to be used for repayment of deposits. If a company has accepted
deposits from small depositors and subsequent to this obtains funds by way of loan

for working capital from any bank, it shall first utilize such funds for the repayment
of any deposit or any part thereof or any interest thereupon to the small depositor
before applying such funds for any other purpose.
6. Application form to contain statement. Every application form issued by a company to
a small depositor for accepting deposits from him shall contain a statement to the
effect that the applicant has been apprised of-
(a) every past default by the company in repayment of deposit or interest thereon;
and
(b) the waiver of interest as above and the reasons therefor.
It may be noted that the prohibition to accept new deposit from small depositors
under sub-section (4) applies where there is a subsisting default. As against this, sub-
section (8) dealing with issue of application form to small depositors relates to past
default(s) which presumably are no longer subsisting.
Default in acceptance or refund of deposit shall be cognizable. Section 58AAA makes
the default in acceptance or refund of deposit to a small investor to be a cognizable
offence under the Code of Criminal Procedure, 1973. However, no court shall take
cognizance of the offence, in this regard, unless the complaint is made by the Central

Government or any officer authorized by it in this behalf.
18. Exemptions. The provisions of s.58A do not apply to: 1. A banking company [s.58A
(7)]. 2. Companies other than banking companies as the Central Government may after
consultation with the Reserve Bank of India, specify in this behalf.

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