Page 189 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes Exemption of small scale units: In pursuance of its powers, the Central Government has,
after consultation with the Reserve Bank of India, granted exemption from the applicability
of the provisions of s.58A to the companies which are small scale units as per the parameters
notified from time to time.

According to the notification GSR No. 73 (E), dated 2-2-1996, the exemption from the

provisions of s.58A of the Act shall be available to small scale industrial units only if they

fulfil all the following conditions, namely: (a) the paid-up capital of the company does not
exceed rupees 25 lakhs; (b) the company accepts deposits from not more than 100 persons;
(c) there is no invitation to public deposits; and (d) the amount of deposits accepted by the
company does not exceed rupees 20 lakhs or the amount of its paid-up capital, whichever
is less.
3. Financial companies as the central government may, after consultation with the Reserve
Bank of India, specify in this behalf.

However, the central government cannot exempt the financial companies from the
provisions relating to advertisement contained in s.58A(2)(b). The Central Government,
in exercise of its aforesaid powers, exempted all classes of financial companies from all the

provisions of s.58A except the provisions relating to advertisement – vide Notifi cation No.
SD 523 (E), dated 18-9-1975.

Power of the Central Government to grant total or partial exemption [s.58A (8)]: The
Central Government has been empowered to grant partial or total exemption from the

provisions of s.58A for a specified period to a company (or a class of companies) after
consultation with the Reserve Bank of India. The Central Government is also empowered
to grant extension of time to any company (or a class of companies) after consultation with
the Reserve Bank in complying with these provisions.
Issue of commercial paper exempted. The Department of Company Affairs has vide

notification dated 29-12-1989 exempted the class of companies which fulfil the criteria
under the Non-Banking Companies (Acceptance of Deposits through Commercial Paper)
Directions, 1989 from the provisions of s.58A with respect to deposits received by non-
banking companies by the issue of commercial paper as per the aforementioned Directions.
The following conditions are required to be satisfi ed:
(i) the companies comply with the terms and conditions stipulated from time to time by
the Reserve Bank of India relating to the issue of such commercial paper; and
(ii) the companies in their annual account disclose the maximum amount raised at
any time during the financial year and the amount outstanding as at the end of the

fi nancial year.
19. Advertisement for inviting deposits (Rule 4). Every company intending to invite deposits
or allowing or causing any person to invite deposits on its behalf is required to issue an
advertisement for the purpose in a leading English newspaper and in one vernacular

newspaper circulating in the State in which the registered office of the company is
situated. Each advertisement should contain the particulars as prescribed in Rule 4. The
advertisement must be issued on the authority and in the name of the Board of Directors
of the company. It must also state the date on which the text was approved by the Board of
Directors. It must contain reference to the conditions subject to which the deposits shall be
accepted by the company.
According to s.58B, an advertisement inviting a prospectus and consequently all the
provisions of the Act, applicable to the prospectus, are applicable to the advertisement
inviting deposits.

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