Deposit Repayment Reserve and Repayment of Deposits

Because a deposit is, in substance, an unsecured or only lightly secured promise by the company to repay a sum of money on a fixed future date, the Companies Act, 2013 and the accompanying Rules build in several distinct safeguards to make sure that promise is genuinely kept, rather than leaving repayment to the company's discretion when the due date actually arrives.

The most important of these safeguards is the Deposit Repayment Reserve Account, already introduced as a condition under both Section 73(2) and Section 76. Every company that accepts deposits — whether from members or from the public — must deposit or invest, on or before the 30th of April every year, a sum not less than twenty per cent of the amount of its deposits maturing during the following financial year, and this sum may be used only to repay those maturing deposits, never diverted for any other corporate purpose. The effect is to force the company to set aside real, ring-fenced funds well in advance of a deposit actually falling due, rather than hoping cash will simply be available on the maturity date; a company that fails to maintain this reserve is treated, for penalty purposes, exactly as though it had defaulted on the deposit itself.

Deposit insurance was conceived as a second, parallel safeguard: the Rules originally required a company accepting deposits to insure them, so a depositor would recover the money even if the company itself failed, in much the same way bank deposits are insured. In practice, no general insurance product covering company deposits has been made available in the Indian insurance market, so this requirement has, in practical effect, largely fallen away even though it remains referenced in the Rules — an honest, worth-flagging gap between what the law originally contemplated and what the market today actually offers. …