Raising public deposits easier

The concept paper on the Companies Act has asked for an easier regime on the companies soliciting public deposits, including making most penalties for the same, non-cognisable.

The paper has effectively suggested relaxing the hold of Section 58AAA of the Companies Act, 1956, for companies taking public deposits.

It has also done away with the provision of extracting a fine on the companies of double the amount, which has been kept in arrears by them.

Instead, Clause 34(7) of the concept paper simply says, "where a company omits or fails to make repayment of deposit...the company and every director of the company shall be punishable under the Act".

Chapter IV on public deposits in the paper has, instead, pushed for stronger disclosure norms while soliciting deposits.

Relaxing the scope of the punishment, it says that all offences under the chapter would be non-cognisable, meaning that the ministry would not initiate action on any violation except for those which pertain to non-repayment of the deposits.

To ensure stronger disclosure, it has expanded the scope of the provision on advertisements by companies soliciting deposits.

While the current provisions say that a statement of the company's financial position should be part of the advertisement, leaving the rest to rules, the concept paper adds several riders in the Act.

It says the advertisement must mention the total number of small depositors and the amount due to them in respect of which default in repayment has been made. It adds that information on any waiver of any interest accrued on the deposits of small depositors have to be also declared up front.

It also says that every company which accepts deposits, shall intimate to the tribunal any default made by it in repayment of such deposits or parts thereof. This has to include the names of depositors and their addresses.

The paper has also omitted the clause under the Companies Act, which lays down the punishment for companies for violating the limits to which they can take deposits. The Companies Act says where such contravention relates to acceptance of any deposit, the fine shall not be less than an amount equal to the amount of the deposit accepted.

The upper limit for such fine is Rs 10 lakh and the minimum is Rs 50,000.

Better norms

• An easier regime on the companies soliciting public deposits, including making most penalties for the same, non-cognisable
• It has also done away with the provision of extracting a fine on the companies of double the amount, which has been kept in arrears by them