Companies Act Section 76

Acceptance of Deposits from the Public by Certain Companies Under Companies Act Section 76

Introduction

Section 76 of the Companies Act addresses the conditions under which certain public companies may accept deposits from the public. 

This section provides a framework that allows public companies, under specific circumstances, to solicit deposits from individuals other than their own members, while ensuring that such activities are regulated to protect the interests of the public.

Key Provisions of Section 76

1. Eligibility for Acceptance of Deposits:

A public company is permitted to accept deposits from persons other than its members, but only if it meets certain prescribed criteria related to its net worth or turnover. These criteria are established by regulatory authorities and are subject to change.

2. Compliance Requirements:

Acceptance of public deposits must comply with the requirements set out in subsection (2) of Section 73 of the Companies Act. 

This implies that there are pre-existing regulations that govern how public deposits are managed, and companies must adhere to these regulations to ensure lawful operations.

3. Government and Reserve Bank Consultation:

The Central Government, in consultation with the Reserve Bank of India, has the authority to prescribe specific rules regarding the acceptance of public deposits. 

This collaboration aims to establish guidelines that protect depositors and ensure financial stability.

4. Credit Rating Requirement:

A critical stipulation is that any public company intending to accept deposits must obtain a credit rating from a recognized credit rating agency. 

This rating must evaluate the company’s net worth, liquidity, and ability to repay deposits on their due dates. 

The purpose of this requirement is to provide transparency and assurance to the public regarding the financial health and safety of the company. 

Additionally, the rating must be updated annually throughout the duration of the deposits, ensuring ongoing accountability.

5. Creation of Charge on Assets:

For companies accepting secured deposits, there is a further obligation to create a charge on their assets. 

This charge must be equal to or greater than the total amount of deposits accepted and must be established within thirty days of accepting these deposits. 

This provision is designed to protect depositors by securing their funds against the company’s assets, thereby providing an additional layer of safety.

6. Applicability of Provisions:

It is important to note that the provisions outlined in this chapter are applicable mutatis mutandis, meaning that they are relevant and can be adapted to the acceptance of deposits under this section. 

This ensures consistency across the regulations governing public deposits, maintaining a coherent legal framework.