Companies can accept "deposits" subject to compliance of certain prescribed conditions. The conditions for Non-Banking Financial Companies (NBFCs) are notified by the Reserve Bank of India and for other Companies (non-NBFCs) mainly by the Central Government.

The term "deposits" is defined very widely and except for specified exclusions, all monies received by a Company would be deposits.

From the term — ‘Deposits’, following are excluded namely amounts received from/by way of :

1. Government Local authority, foreign government or any other foreign person or citizen or authority or any amount guaranteed by Government.

2. Banks

3. Various government or semi-government financial companies or Corporation/insurance companies or a public financial institution as

4. Any other company

5. Security deposit from an employee

6. Security or advance from any purchasing, selling or other agents in the course of business or any advance received against orders for supply of goods, properties or services.

7. Subscription to any shares, stocks, bonds or debentures pending allotment. Any amount received by way of calls in advance so long as this is not repayable under the Articles.’

8. Amounts in trust or in transit

9. Deposits from shareholders, directors or relatives in case of a private company.

10. Directors or members out of his/their own funds, by the Company. Such director/member has to furnish a declaration in writing to the effect that the funds are not being given out of funds acquired by him by borrowing or accepting from others.

11. Issue of bonds or debentures secured by the mortgage of any immovable property or convertible into shares, subject to certain conditions.

12. Unsecured loans from promoters pursuant to an agreement with financial institutions for such loans, as long as the loans from such financial institutions are outstanding.

The relevant provisions of sections 58A, 58AA, 58AAA and 58B contain relevant general provisions for protection of depositors, disclosures, etc., mainly for non-financial companies.

Restrictions on Acceptance of Deposits:

1. Private companies cannot, vide their articles, accept deposits except from members, directors or their relatives.

2. Companies having a Net Owned Funds (as defined) of less than Rs. 1 crore cannot invite deposits.

3. A company which is in default in repayment of any deposit or part thereof and any interest thereon (applicable w.e.f March 1, 1997).

Acceptance of deposits in violation of section 58A can result in fine for the company concerned and imprisonment up to 5 years and fine for the officers in default.

Return of deposits to be filed with the ROC with a copy to RBI on or before 30th June every year in the prescribed form.

Exemption to SSIs :- Vide Notification 2-2-1996 issued by Dept. of Company Affairs SSIs are granted exemption from the provisions of section 58A and rules made thereunder provided : (i) they are registered as SSIs with the Directorate of SSI; (ii) investment in plant and machinery does not exceed Rs. 300 lakhs; (iii) deposits are accepted from not more than 100 persons; (iv) total deposits accepted do not exceed Rs. 20 lakhs or the paid-up capital of the company, whichever is less.