Report No. 143

Draft Amendments

The above proposals made in Chapter IV can be implemented by amending the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975, broadly on the lines indicated in the draft amendments subject to such modifications as the draftsman may deem necessary:-

(1) Definition to be inserted at the end of rule 2, Companies (Acceptance of Deposits) Rules, 1975:-

"Small Depositors" means depositors, the principal amount, of whose individual deposit in a particular company does not exceed Rs. 11,000.'

(2) New provision to be inserted as rule WA in the Companies (Acceptance of Deposits) Rules, 1975:-

"10A. (1) Every Company which accepts deposits from small depositors shall intimate to the Company Law Board any default which might have been made in repaying in due time the amount of deposit in whole or in part with the interest accrued thereon.

(2) Such intimation shall be given within 60 days of the due date for repayment of the deposit and shall give full details of the names and addresses of the depositors, specifying the principal sum of the deposit and the interest accrued thereon, separately, for each depositor."

(3) A new sub-section, sub-section (9A), to be inserted in section 58A of the Companies Act, 1956:-

"(9A) Where a company has failed to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, being a deposit made by a small depositor as defined in the rules made under this Act, the following provisions shall apply:-

(a) the Company Law Board, on receipt of an intimation as regards default of the company in accordance with the rules made under this Act, shall exercise the power conferred by sub-section (9) on its own motion;

(b) it shall not be necessary for the depositor to be present at the hearing of the proceedings taken by the Company Law Board in exercise of the said power; and

(c) the Company Law Board shall pass an appropriate order in the proceedings within a period of 30 days of the receipt of the intimation from the company, unless the Board, after giving the depositor an opportunity of hearing, extends the period."

(4) A new provision to be inserted as rule 3(5) in the Companies (Acceptance of Deposits) Rules, 1975:-

"(5) No company shall, at any time, accept further deposits from small depositor, so long as every depositor whose deposit has matured has not been repaid the amount of the deposit and the interest accrued thereon:

Provided that this sub-rule shall not require the repayment of-

(a) any deposit which has been renewed by the depositor voluntarily; or

(b) any deposit, whose repayment has become impracticable, because of the death of the depositor or whose repayment has become illegal by reason of any stay order issued by a competent court."

(5) A new provision to be inserted as rule 4(2A) in the Companies (Acceptance of Deposits) Rules, 1975:-

"(2A) Every company which has on any occasion made a default in the repayment of the principal or interest of a small depositor shall state, in every future advertisement inviting deposits from the public, the total amount of small deposits in respect of which such default has been committed."

(6) A new provision to be inserted as rule 4(2B) in the Companies (Acceptance of Deposits) Rules, 1975:-

"(2B) Where any depositor with a company has, in the past waived the payment of interest accrued thereon, that fact shall be mentioned by the company in every advertisement inviting deposits issued after such waiver."

(7) Provision to be inserted as rule 4A in the Companies (Acceptance of Deposits) Rules, 1975:-

"4A. Where a company has accepted deposits from small depositors and obtains funds by taking a loan from any nationalised bank, the company shall utilise the funds so obtained in the repayment of the small deposits before applying the funds to any other use."

(8) Provision to be inserted as rule 5(3) in the Companies (Acceptance of Deposits) Rules, 1975:-

"5(3). The form of application referred to in sub-rule (2) shall contain a statement to the effect that the applicant had been apprised of-

(a) every past default by the company in the repayment of deposit (if any such default has occurred); and

(b) the waiver of interest by any depositor in the past in regard to any deposit in the company (if any such waiver has occurred)."

(9) New rule to be inserted in the Companies (Acceptance of Deposits) Rules, 1975:-

"(1) If a company or any other person contravenes any provision mentioned in sub-rule (2), every person, who at the time the contravention was committed was a Director of the Company, as well as the Company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

(2) The provisions referred to in sub-rule {1) are-

(a) provisions of sub-section (9A) of section 58A of the Act;

(b) provisions of these rules which apply where the company has accepted a deposit from a small depositor;

(c) provisions made in these rules in so far as they require the mention in any advertisement issued under the rule, of the waiver of the accrued interest by the depositor;

(d) provisions made in these rules, requiring that application form for a deposit shall contain a statement regarding past defaults in repayment of deposits or past waiver of interest by depositors.

(3) An offence under this rule shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine:

Provided that where the director of the company is guilty under this rule, he shall be punishable with a minimum imprisonment of 15 days, unless the court, for reasons to be recorded, is satisfied, that a lesser sentence would meet the ends of justice.

(10) New section 624C to be inserted in the Companies Act, 1956:

"624C. Notwithstanding anything contained in sections 621 and 624, rules made under this Act may provide that an offence connected with or arising out of the acceptance of deposits from the public by a company shall be,-

(a) cognizable within the meaning of the Code of Criminal Procedure, 1973;

(b) punishable with imprisonment upto three years and fine, with a minimum punishment of imprisonment not exceeding fifteen days."

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