Q.Explain the terms and conditions relating to the period, amount and rate of interest applicable to deposits accepted by a company.

The law does not leave the commercial terms of a deposit entirely to the company — the period, the amount, and the interest offered are all capped by the Rules.

The Companies (Acceptance of Deposits) Rules, 2014 fix the outer commercial terms of a deposit so that neither the period, the amount, nor the return offered is left to the company's own discretion, whether the deposit is accepted from members under Section 73(2) or from the public under Section 76.

As to period, a deposit must ordinarily be accepted or renewed for not less than six months and not more than thirty-six months — reflecting its place as a genuinely medium-term source of finance, longer than routine working-capital borrowing but shorter than a debenture or bond. The Rules allow one narrow exception: a company may accept deposits repayable in as little as three months, to meet a genuine short-term working-capital need, but only up to ten per cent of the aggregate of its paid-up share capital, free reserves and securities premium account, and never as routine practice.

As to amount, the ceiling is expressed as a percentage of the company's own financial base (paid-up share capital, free reserves and securities premium account), so it scales with the size of the company rather than being a flat rupee figure. A company other than an eligible company may accept deposits from members up to thirty-five per cent of this base. An eligible company is subject to a tighter individual member-deposit limit of ten per cent, but may accept deposits from members and the public together up to a combined twenty-five per cent of the same base — reflecting the larger overall scale an eligible company is permitted to raise deposits at, balanced by a more conservative limit on any one category of depositor. …

Students often quote only the 6-36 month range and forget the narrower 3-month working-capital exception entirely, or apply the 35% member-deposit limit to an eligible company (whose own limits are tighter individually but wider combined). Confusing the de …