Board of directors of Green Field Ltd. decides to accept deposits from the public at a compound interest rate of 12% per annum. Examining the provisions of the Companies Act, 2013, advise whether the Board can go ahead w

Advice on Accepting Public Deposits by Green Field Ltd. To advise Green Field Ltd. on its proposal to accept deposits from the public at a compound interest rate of 12% per annum, we need to examine the provisions of the Companies Act, 2013, and the Companies (Acceptance of Deposits) Rules, 2014 (as amended). Relevant Legal Provisions: The acceptance of deposits by companies is primarily governed by Section 73 of the Companies Act, 2013, and the Companies (Acceptance of Deposits) Rules, 2014. 1. Eligibility to Accept Public Deposits: Only 'Eligible Companies' can invite or accept deposits from the public. An 'Eligible Company' is defined as a public company having a net worth of not less than ₹100 crore or a turnover of not less than ₹500 crore, and which has obtained the prior consent of its shareholders by a special resolution. Other companies (non-eligible public companies and private companies) can accept deposits only from their members, subject to certain conditions. 2. Maximum Rate of Interest (Rule 3(6) of Deposit Rules): Rule 3(6) of the Companies (Acceptance of Deposits) Rules, 2014, is crucial here. It states that: No company (whether accepting deposits from members or public) shall invite or accept or renew any deposits in any form, carrying a rate of interest or pay brokerage thereon at a rate exceeding the maximum rate of interest or brokerage prescribed by the Reserve Bank of India (RBI) for acceptance of deposits by non-banking financial companies (NBFCs) . Currently, the maximum rate of interest that NBFCs can offer on public deposits is regulated by the RBI. This rate is subject to change by RBI directives. Application to the Case: Green Field Ltd. proposes to accept deposits from the public at a compound interest rate of 12% per annum. First, Green Field Ltd. must determine if it is an 'Eligible Company' to accept deposits from the public. If not, it cannot accept deposits from the public at all. Second, assuming it is an 'Eligible Company' and has complied with all other conditions (e.g., special resolution, credit rating, deposit insurance), the proposed interest rate of 12% per annum must be compared with the maximum rate prescribed by the RBI for NBFCs. Conclusion and Advice: Green Field Ltd. can go ahead with its proposal to accept deposits from the public at a compound interest rate of 12% per annum ONLY IF : It qualifies as an 'Eligible Company' and fulfills all other conditions for accepting public deposits (e.g., passing special resolution, obtaining credit rating, creating deposit repayment reserve, etc.). The proposed interest rate of 12% per annum does not exceed the maximum rate of interest prescribed by the Reserve Bank of India for acceptance of deposits by non-banking financial companies at the time of inviting/accepting deposits. The Board should verify the current RBI prescribed maximum interest rate for NBFCs before proceeding. If 12% exceeds that rate, they cannot offer it.