Hefty penalty of up to 18 per cent annual interest for defaulters proposed

To safeguard investors from fraudulent money-collection schemes, the government, on Tuesday, proposed mandatory insurance cover for public deposits garnered by companies and hefty penalty of up to 18 per cent annual interest for defaulters.

The premium of the deposit insurance cover would need to be paid by companies themselves and a penalty at an annualised interest rate of 15 per cent would be slapped on those which do not provide deposit insurance to their depositors. The proposed measures, which form part of the draft rules for the new Companies Act, also bar the companies from promising huge returns and hefty agent commissions in excess of the prevailing rates prescribed by the RBI for such deposits.

Releasing the draft rules, the Corporate Affairs Ministry said that action would be initiated against the companies that fail to comply with the new rules, called Regulations for Acceptance of Deposits by Companies.

Besides, any violating company and each of its officers and other persons, who could be in default, would be punishable with be fined Rs.10,000, with a further fine for continuing default of Rs.1,000 for every day of contravention.

Under the deposit insurance scheme, the companies would need to enter into a contract to insure the total principal amount as also the promised interest component for the depositors. However, premium to be paid for such insurance can not be recovered from the depositor and the money has to be paid by the company itself.

All deposit-taking companies would need to maintain a Deposit Repayment Reserve Account with a scheduled bank and this account would need to have at least 15 per cent of the total amount of deposits.

The government also proposed strict disclosure norms and other eligibility criteria before offering any deposit scheme. Every company inviting deposits should provide for security by way of a charge on its assets, excluding intangible assets, for an amount equivalent to the deposits collected.

Also, amount secured by way of charge on assets should not exceed the market value of such assets. As per the draft norms, deposit taking companies should appoint one or more independent trustees to ensure security for deposit amounts.