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Arun S

New Delhi, Sept. 24 Manufacturing firms are lobbying against the prospect of being banned from taking deposits from the public. The Companies Bill 2009 has a provision (Clause 66) that proposes to allow companies to take deposits only from their members.

The clause prevents companies except banks and non-banking finance companies from inviting, accepting or renewing deposits from the public. As per the Bill, within 12 months of the new Companies Act coming into force, companies with outstanding deposits from the public will have to return them.

Official sources told Business Line that the Bill will be taken up by the Parliamentary Standing Committee next week. The other main issues in the Bill include exempting listed firms from the compulsory requirement of attaching separate balance sheets of subsidiary companies in their annual statement to shareholders.

Instead, the new Bill says a consolidated account of the holding companies is enough. The Bill also aims to do away with many Government approvals, including on managerial remuneration.

On Clause 66, manufacturing companies say the provision will curb their ability to augment capital.

Industry proposals say they don’t mind stringent conditions on companies wanting to attract deposits from public, including the stipulations that such firms should have excellent track record, be listed and follow corporate governance norms, pay dividends, and have a certain minimum capital. The norms could also specify that companies found guilty of defaults regarding return of deposits would be immediately debarred from accepting such deposits.

Pointing out that Clause 66 closes the avenue of public depositors to deposit in companies, Mr Harish Vaid, a senior company secretary and co-Chairman of the Corporate Affairs Committee of PHD Chamber of Commerce and Industry said, “There are many reputed manufacturing companies whom depositors trust. These companies also give a much better rate of interest on the deposits than banks.”

Mr Vaid pointed out that there are provisions in the existing Companies Act that are stringent enough to curb misuse by the companies in case deposits are invited.

Corporate law expert Mr Lalit Bhasin, however, said Clause 66 will ensure that companies will be able to raise money only from financial institutions that collect money from the public, and not from the public directly. This ensures that public money is safe.

On criticism that companies can circumvent Clause 66 by granting one share each to those interested members of the public and then taking money from them, Mr Bhasin said, “Such a member of the public taking just one share to be a shareholder and making huge deposits will have to show the source of the money. He is answerable to authorities regarding tax on capital gains.”

More Stories on : Fixed Deposits | Company Law | Investor Protection

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