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New Companies Act to protect the interest of investors in company deposits

New Companies Act to protect the interest of investors
Taking heed of the recent chit-fund scam by Saradha Group in West Bengal, the central government has taken steps to protect the interest of depositors through some of the rules in the New Companies Act. As per the new rules called Regulations for Acceptance of Deposits by Companies, all companies mobilizing public deposits, are compulsorily required to take insurance cover for both the principal and interest amount.

The premium for the insurance cover has to be paid by the company itself and cannot be garnered from the public. Further, the draft guidelines also impose restriction on the companies for luring customers with high returns and offering exorbitant commission to agents on such deposits in excess of what is prescribed by the apex body.

In the interest of investors in company deposits, New Companies Act mandates companies raising public deposits to open and maintain a Deposit Repayment Reserve Account in a scheduled bank. Further, at any given point in time a minimum of 15% of the total deposit amount has to be maintained by the company in the account. In addition, the central government proposed strict norms per se eligibility criteria and other disclosure norms before opening the scheme for the public.

For such companies who fail to comply with the new ruling, a penalty equivalent to 15% on an annual basis will be levied on the defaulted amount of deposit. Also, violating company including the officers involved in the default would be imposed a fine of Rs 10,000 and an additional fine of Rs. 1000 on a daily basis for continuing default.

Story first published: Friday, October 25, 2013, 14:33 [IST]
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