MCA, RBI to discuss insurance cover for public deposits

Proposal comes against the backdrop of rising incidents of investors getting duped by fraudulent money pooling schemes

The Ministry of Corporate Affairs will hold consultations with the Reserve Bank on the mandatory insurance cover that has been proposed for public deposits garnered by companies.

The proposal, being mooted under the new Companies Act, comes against the backdrop of rising incidents of investors getting duped by fraudulent money pooling schemes.

"There is an enabling provision in Section 73(2) (d) of the Companies Act whereby companies permitted to accept deposits from the public will be required to 'provide such deposit insurance in such manner and to such extent as may be prescribed'.

"The operationalisation of this provision would require framing of suitable rules in consultation with the Reserve Bank of India," Corporate Affairs Minister Sachin Pilot said in a written reply to the Lok Sabha on Thursday.

Under the draft rules for the Companies Act, 2013, the ministry has proposed mandatory insurance cover for public deposits collected by companies and hefty penalty of up to 18% 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% would be slapped on those which do not provide a deposit insurance to their depositors.

The proposal is part of Regulations for Acceptance of Deposits by Companies.

Among others, any violating company and each of its officers and other persons, who could be in default, would 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.