Deposits from the Public by Eligible Companies — Section 76

Section 76 of the Companies Act, 2013 carves out the second, and far more heavily conditioned, exception to Section 73(1)'s blanket prohibition — permitting a company to invite deposits from the public at large, not merely from its own members — but restricts this privilege to a specifically defined class of company, the eligible company, and layers on a correspondingly stricter set of conditions than Section 73(2) does.

An eligible company, for this purpose, means a public company — never a private company — having a net worth of not less than the amount prescribed, or a turnover of not less than the amount prescribed, and which has obtained the prior consent of its members by a SPECIAL resolution passed at a general meeting (as against the ordinary resolution Section 73(2) requires for member deposits) and has also filed a copy of that special resolution with the Registrar of Companies before making any invitation to the public. The stricter approval requirement reflects the far larger and less-informed pool of investors a public deposit invitation reaches, compared with a company's own existing members.

Beyond the eligibility threshold and the special resolution, an eligible company inviting deposits from the public must additionally satisfy conditions going further than Section 73(2)'s member-deposit conditions: (a) issue a circular or, more commonly, a public advertisement in Form DPT-1, published in one English-language newspaper and one vernacular-language newspaper circulating in the state where the company's registered office is situated, so that members of the general public — not just existing shareholders — genuinely have access to the company's financial position and terms before deciding to deposit money; (b) obtain, before making the invitation, a credit rating from a recognised credit rating agency in respect of the deposits it proposes to invite, and disclose that rating to depositors at the time of invitation, refreshing it every year for as long as the deposits remain outstanding, so that a depositor's assessment of the company's creditworthiness stays current rather than frozen at the date of the original invitation; (c) appoint one or more trustees for depositors and execute a deposit trust deed, in Form DPT-2, at least seven days before issuing the circular or advertisement, so that depositors' interests are represented by an independent party throughout the deposit's tenure; (d) maintain the same Deposit Repayment Reserve Account that Section 73(2) requires of member-deposit companies; and (e) provide deposit insurance where the rules require it, and create a charge on the company's assets where the deposits accepted are secured. …