Cos will have to reveal end use of deposits under new law
People who deposit their savings with public companies for a higher interest rate, but get only limited protection, can now look forward to a better deal.
By Gireesh Chandra Prasad, TNN |
NEW DELHI: People who deposit their savings with public companies for a higher interest rate, but get only limited protection, can now look forward to a better deal.
The new company law, which the government is working on, would have a built-in system to ensure that corporates are more transparent while accepting deposits. This would reassure them of safety and liquidity on their investments. The law would make it mandatory for public companies to declare the end use of the funds they are soliciting.
Right now, a public company accepting deposits under the Companies (Acceptance of Deposits) Rules, 1975, is not needed to declare the end use of funds. Such a rule exists only for listed firms raising funds under Sebi norms. Firms would also be needed to set up investor/depositor panels to keep them privy to future plans and the risks it is taking.
The steps are in line with the JJ Irani panel which advised the company affairs ministry on the law. “These deposits get limited protection as they are unsecured loans. The tenure is usually 6-36 months. If the company downs shutters, government and workmen dues, and secured loans get priority over public deposits,” says Pankaj Jain, a city-based company law expert and consultant.
The existing safeguards to ensure prompt repayment include the requirement of maintaining liquid assets of at least 15% of the deposits maturing during the year by investment in specified securities and a penal interest of 18%.
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