NDH-1 vs NDH-2: Public Company Deposits Compliance

TL;DR

When deposit rules apply, return filing, and exemptions for private companies.

Deposit rules are one of the most misunderstood compliance areas for Indian companies. Many private limited companies do not know that taking money from certain people can trigger the Companies (Acceptance of Deposits) Rules. Even money from your own shareholders can trigger these rules. This guide explains when the deposit rules apply. It explains what NDH-1 and NDH-2 are. It explains how to stay compliant.

When Do Deposit Rules Apply

The Companies (Acceptance of Deposits) Rules control when a company can accept money from people who are not banks or financial institutions. The rules apply differently to public and private companies.

Public Companies:

Public companies can generally accept deposits from their members if they meet these conditions.

• The deposits must be unsecured, evidenced by a deposit agreement.
• The deposit must have a maturity period of not less than 6 months and not more than 36 months.
• The company must comply with the reporting and return filing requirements.
• The amount of deposits must not exceed the limit prescribed by the rules.

Private Companies:

Private companies cannot generally accept deposits from the public (more than 50 persons). But there are exemptions.

A private company can accept deposits from:

• Its directors.
• Its shareholders (members).
• Relatives of directors.
• Employees of the company (up to a limit).

If a private company accepts deposits only from its members and directors (not from the public), it is generally exempt from most deposit rules. But it must still file the required reports.

What Is a Deposit Under the Rules

The definition of “deposit” under the Companies Act is wide. It catches many transactions that businesses would not normally think of as deposits.

• Money received as a loan.
• Money received against a promise (express or implied) to repay it.
• Money received as a security deposit.
• Money received in connection with the supply of goods or services (if not payable within the normal course of business).

The rules do not count these as deposits:

• Advances received in the normal course of business for goods and services (e.g., advance from a customer for an order).
• Credit given by a supplier for goods and services in the normal course of business.
• Deposits from banks and financial institutions.
• Loans from the company’s own directors (but there are separate related party rules).

NDH-1: The One-Time Return

NDH-1 (Notification Deposit-Higher 1) was the one-time return that companies filed under the original Companies (Acceptance of Deposits) Rules, 2014. It declared all outstanding deposits on the date the rules started.

This return has mostly been replaced by the current reporting system. But companies that had outstanding deposits when the rules started filed NDH-1 to declare those deposits. They also filed to set up a repayment schedule.

When NDH-1 Was Filed:

• As on March 31, 2015 (the date of commencement of the deposit rules).
• Companies with any outstanding deposits from members or others as of that date were required to declare them in NDH-1.

What NDH-1 Contained:

• Name and CIN of the company.
• Details of all outstanding deposits (amount, maturity date, rate of interest).
• The repayment schedule.
• Details of the liquid resources of the company to repay the deposits.

NDH-2: The Half-Yearly Return

NDH-2 (Notification Deposit-Higher 2) is the half-yearly return that companies accepting deposits must file every six months. This is the ongoing compliance requirement for companies that have accepted or are accepting deposits.

Who Must File NDH-2:

• All public companies that have accepted deposits.
• Private companies that have accepted deposits from shareholders or directors (under the exemption).

When to File:

• April 1 to September 30: File by October 31. This covers the period ending September 30.
• October 1 to March 31: File by April 30. This covers the period ending March 31.

What NDH-2 Contains:

• Details of all outstanding deposits at the end of the period.
• Repayment made during the period.
• New deposits accepted during the period.
• Interest accrued and paid during the period.
• Details of defaults in repayment (if any).
• Details of liquid resources available to repay deposits.

Form DPT-3: The Annual Return of Deposits

Form DPT-3 is the annual return that companies must file with the ROC under the Companies (Acceptance of Deposits) Rules. You file it in addition to NDH-2.

Who Must File DPT-3:

• All companies that have accepted deposits (including public companies and exempt private companies).
• Companies that have taken loans that may be treated as deposits under the rules.

Due Date:

• Within 90 days from the end of the financial year (by June 30 of each year).

What DPT-3 Contains:

• Details of all outstanding deposits as on March 31.
• The full breakdown of liquid resources.
• Confirmation that the company has not accepted deposits in excess of the prescribed limits.
• Details of any default in repayment of deposits.

Private Company Exemptions

The deposit rules treat private companies differently. If a private company accepts deposits only from its members and directors (not from the public), it is exempt from:

• The limits on maximum deposits.
• The requirement to create a security deposit.
• Most of the filing requirements.

But even exempt private companies must file:

• Form DPT-3 as an annual return of deposits (to declare they have not accepted public deposits).
• Details of any deposits from directors (as related party transactions).

The Key Exemption:

A private company is exempt from the deposit rules if it has not accepted any deposit from the public (i.e., from persons who are not members, directors, or relatives). It must also have filed a declaration to this effect with the ROC.

Penalties for Non-Compliance

Accepting Deposits in Violation:

If you accept deposits that break the rules, the penalty is ₹1 crore or twice the deposit amount (whichever is lower), with a minimum of ₹25 lakhs. Every officer in default can be imprisoned for up to 7 years and fined.

Failure to File NDH-2:

If you miss the NDH-2 deadline, you pay ₹100 per day of default with no maximum. The company and its officers may also face prosecution.

Failure to File DPT-3:

Missing the DPT-3 deadline carries similar daily fees and possible prosecution.

Practical Compliance Checklist

1. Audit your deposit position: Check all money your company has received from shareholders, directors, and others. Work out if any of these count as “deposits” under the rules.
2. Confirm exemption status: If you are a private company that has only taken money from members and directors, confirm you are within the exemption limits.
3. File NDH-2 on time: If you have deposits and must file NDH-2, submit it by October 31 (for April to September) and April 30 (for October to March).
4. File DPT-3 every year: File by June 30 each year even if you have no deposits. The annual return confirms your exempt status.
5. Repay deposits on time: If your deposits have matured, repay them on time. Default leads to serious criminal liability.
6. Separate deposits from business advances: Make sure customer advances for goods and services are documented as advances (not deposits) to avoid misclassification.

Deposits vs Business Advances — The Distinction That Matters

The most common compliance error is treating business advances as something other than deposits. When you receive money from a customer for a future delivery of goods or services, the classification matters.

• If the advance is refundable (the customer can ask for their money back if you do not deliver), it may be a deposit.
• If the advance is adjustable against future invoices (it gets used up in the price of the goods), it is generally a business advance, not a deposit.

Keep clear records that separate:

• Refundable deposits (where the customer can demand repayment).
• Advance payments for goods and services (where the money is used in the transaction).

This distinction is critical for staying compliant with deposit rules.