Union Ministry of Corporate Affairs (MCA) notified rules on providing insurance cover for public deposits. The rules called Regulations for Acceptance of Deposits by Companies was notified under section 73(2) (d) of the Companies Act 2013.
Section 73(2) (d) of the Act provides a mandatory insurance cover for public deposits garnered by companies and a penalty of up to 18% annual interest for defaulters.
The rules were notified on 26 March 2014 and become operational from 1 April 2014.
Every company under sub-section (2) of section 73 and every other eligible company inviting public deposits shall enter into a contract providing for deposit insurance at least thirty days before the issue of circular or advertisement.
The deposit insurance contract shall specifically provide that in case the company defaults in repayment of principal amount and interest thereon, the depositor shall be entitled to the repayment of principal amount of deposits and the interest thereon by the insurer up to the aggregate monetary ceiling as specified in the contract.
Provided that in the case of any deposit not exceeding 20000 rupees, the deposit insurance contract shall provide for payment of the full amount of the deposit and in the case of any deposit in excess of 20000 rupees the deposit insurance contract shall provide for payment of an amount not less than 20000 rupees for each depositor.
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% of the total amount of deposits.
When: 4 April 2014