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To safeguard investors from fraudulent money-collection schemes, the government today 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 a 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 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.
Among others, key managerial personnel or any other officer or employee of the company are barred from becoming deposit trustees.
In case the companies default on deposit insurance contract, they should repay the amount of deposits covered under insurance cover within fifteen days.
"If such a company does not repay the amount of deposits within fifteen days, it shall pay 15 per cent interest per annum for the period of delay and shall be treated having defaulted and liable to be punished in accordance with the Act," according to the draft rules.
Tightening the norms, companies seeking deposits are barred from advertising the scheme till they have informed the Registrar at least 30 days prior to the issue. The company should publicise the deposit scheme and the circular should be posted on its website.
Further, only those authorised in writing by the company to solicit deposits, would be entitled for brokerage to avoid multi-level commission payments.
Companies that fail to make the payments even after maturity period would be liable to an annual penal interest of 18 per cent per annum, irrespective of whether they are secured, unsecured, or matured and claimed but remaining unpaid.
Moreover, companies would not be allowed to make changes in the terms and conditions related to deposits after accepting them.
Besides, the Registrar of Companies (RoC) can take action if it is found that deposits have been accepted by a company for a fraudulent or unlawful purpose or are not in compliance with the provisions of the Act. 


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