Miscellaneous NBFC Directions 1977 Updated as on June 30, 2011

RBI/2011-12/24 DNBS (PD) CC No. 230/ 03. 02.001/2011-12 July 1, 2011 To The Chairman/CEOs of all Miscellaneous Non-Banking Companies Dear Sir, Notification as amended upto June 30, 2011 – “Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977” As you are aware, in order to have all current instructions on the subject at one place, the Reserve Bank of India issues updated Circulars / notifications. The instructions contained in the Notification No.DNBC.39/DG(H)-77 dated 20th June 1977 updated as on June 30, 2011 are reproduced below. The updated notification has also been placed on the RBI web-site ( http://www.rbi.org.in ). Yours sincerely, (Uma Subramaniam) Chief General Manager-in-Charge RESERVE BANK OF INDIA DEPARTMENT OF NON-BANKING SUPERVISION CENTRAL OFFICE CENTRE I, WORLD TRADE CENTRE, CUFFE PARADE, COLABA, MUMBAI 400 005. Notification No.DNBC.39/DG(H)-77 dated 20th June 1977 The Reserve Bank of India having considered it necessary in the public interest and being satisfied that for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to give the directions set out below, hereby, in exercise of the powers conferred by sections 45J, 45K and 45L of the Reserve Bank of India Act, 1934, (2 of 1934) and of all the powers enabling it in this behalf, and in supersession of the earlier Directions contained in Notification No.DNBC.21/DG(S)-73 dated the 23rd August 1973 as amended from time to time gives to every miscellaneous non-banking company the directions hereinafter specified. PART I - PRELIMINARY 1 . Short title and commencement of the directions These directions shall be known as the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977. They shall come into force with effect from the 1st July 1977 and any reference in these directions to the date of commencement thereof shall be deemed to be a reference to that date. 2. Extent of the directions 1 [These directions shall apply to every financial institution which is a company and which carries on, in any place in the State of Jammu and Kashmir, any of the following types of business and to every financial institution which is a company and which carries on, in any place in India, any of the types of business referred to in sub-paragraph (2) to (4) below :- ( 1 ) Collecting whether as a  promoter, foreman, agent or in any other capacity monies in one lump sum or in instalments by way of contributions or subscriptions or by sale of units, certificates or other instruments or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings, mutual benefit, thrift, or any other scheme or arrangement by whatever name called, and utilising the monies so collected or any part thereof or the income accruing from investment or other use of such monies for all or any of the following purposes - ( a ) giving or awarding periodically or otherwise to a specified number of subscribers as determined by lot, draw or in any other manner, prizes or gifts in cash or in kind, whether or not the recipient of the prize or gift is under a liability to make any further  payment in respect of such scheme or arrangement; ( b ) refunding to the subscribers or such of them as have not won any prize or gift, the whole or part of the subscriptions, contributions or other monies collected, with or without any bonus, premium, interest or other advantage, howsoever called, on the termination of the scheme or arrangement, or, on or after the expiry of  the period stipulated therein; ( 2 ) managing, conducting or supervising as a promoter, foreman or agent of any transaction or arrangement by which the company enters into an agreement with a specified number of subscribers that every one of them shall subscribe a certain sum in instalments over a definite period and that every one of such subscribers shall in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the agreement be entitled to the prize amount; Explanation For the purposes of this sub-paragraph, the expression "prize amount" shall mean the amount,  by whatever name it be called, arrived at by deduction from out of the total amount subscribed at each instalment by all subscribers, ( a ) the commission charged by the company or service charges as a promoter or a foreman or an agent; and ( b ) any sum which a subscriber agrees to forego, from out of the total subscriptions of each instalment, in consideration of the balance being paid to him; ( 3 ) Conducting any other form of chit or kuri which is different from the type of business referred to in sub-paragraph (2) above; ( 4 ) undertaking or carrying on or engaging in or executing any other business similar to the business referred to in sub-paragraph (1) to (3).] 3. Definitions ( 1 ) In these directions, unless the context otherwise requires, ( a ) "banking company" means a banking company as defined in section 5(c) of the Banking Regulation Act, 1949 (10 of 1949); ( b ) "company" means a company as defined in section 45 I(a) of the Reserve Bank of India Act, 1934 (2 of 1934) but does not include a company which is being wound up  under any law for the time being in force; ( c ) "deposit" shall have the same meaning as assigned to it in section 45 I(bb) of the Reserve Bank of India Act, 1934 (2 of 1934)"; ( d ) "depositor" means any person who has made a deposit with the company; ( e ) "foreman" means a person who under the chit or kuri agreement or any other scheme or arrangement is responsible for the conduct of the chit or kuri or such scheme or arrangement; ( f ) "free reserves" shall include the balance in the share premium account, capital and debenture redemption reserves and any other reserve shown or published in the balance sheet of a company and created through an allocation of profits, not being (i) a reserve created for repayment of any future liability or for depreciation in assets or for bad debts; or (ii) a reserve created by revaluation of the assets of the company; ( g ) "miscellaneous non-banking company" means a company carrying on all or any of the types of business referred to in paragraph 2 of these directions; ( h ) words or expressions used but not defined herein and defined in the Reserve Bank of India Act, 1934 (2 of 1934) shall have the same meaning as assigned to them in that Act. Any other words or expressions not defined herein or in the Reserve Bank of India Act, 1934 (2 of 1934) shall have the same meaning as assigned to them in the Companies Act, 1956 (1 of 1956). 4. Non-applicability of the directions to certain types of deposits of money Nothing contained in paragraphs 5 to 2 [9B] and 13 of these directions shall apply to the following types of deposits received by a miscellaneous non-banking company, namely:- i ) Any money received or collected under a transaction or arrangement referred to in sub-paragraph (2) of paragraph 2; ii ) any money received from the Central Government or a State Government or any money received from any other source and the repayment of which is guaranteed by the Central Government or a State Government or any  money received from a local authority or a foreign Government or any other foreign citizens, authority or person; iii ) any money received from a banking company or from  the State Bank of India or from a banking institution notified by the Central Government under section 51 of the Banking Regulation Act, 1949 (10 of 1949) or a corresponding new bank as defined in section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or from a co-operative Bank as defined in 3 [Section 5 (cci) of the Banking Regulation Act, 1949 (10 of 1949)] ; iv ) any loan received from the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964) or the Industrial Credit & Investment Corporation of India Ltd., established under the Indian Companies Act, 1913 (7 of 1913) or the Industrial Finance  Corporation of India established under the Industrial Finance Corporation Act, 1948 (15 of 1948) or the Industrial Reconstruction Bank of India Ltd., or the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956) or  4 [the Small Industries Development Bank of India  established under the Small Industries Development Bank of India Act, 1989 (39 of 1989) or] a State Financial Corporation established under the State Financial Corporation Act, 1951 (63 of 1951) or Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or the General Insurance Corporation of India and its subsidiaries or the Tamil Nadu Industrial Investment Corporation Ltd., or the National Industrial Development Corporation of India Ltd., or the 5 [SCICI Ltd.], or the Rehabilitation Industries Corporation of India Ltd., or any Electricity Board constituted under the Electricity (Supply) Act, 1948 or the State Trading Corporation of India Ltd. or the Rural Electrification Corporation Ltd., or the Minerals and Metals Trading Corporation of India Ltd., or the Agricultural Finance Corporation Ltd., or the State Industrial and Investment Corporation of Maharashtra Ltd., or the Gujarat Industrial and Investment Corporation Ltd. or 6 [ the Asian Development Bank, or International Finance Corporation, or] any other financial institution wholly owned by the Central Government or a State Government or any other financial institution that may be notified by the Reserve Bank in this behalf; v ) Deleted 7 vi ) Deleted [7] 8 [ vii ) any money received from an employee of the company by way of security deposit for due performance of his duties : Provided that the amount of such security deposit is deposited with a scheduled bank or a post office in the joint names of the employee and the company on the conditions, that, - ( a ) it shall not be withdrawn without the consent in writing of the employee;  and ( b ) it shall be repayable to the employee  in accordance with the terms of his employment along with interest paid by  bank/post office on the deposit account; ] 9 [viii ) any money raised by issue of debentures or bonds with predetermined terms of conversion without any  option given, either to the issuer or the holder  for conversion of the said debentures or bonds  into equity share capital;] ix ) any money received by way of subscription to any  share  or stock pending the allotment of such shares or stock or any money received by way of subscription to debentures or bonds of the type  specified in clause (viii) of this paragraph pending the allotment of such debentures or bonds and any money received by way of calls in advance on shares in accordance with the company's articles of association so long as such money is  not repayable to the shareholders under the  articles of association of the company. 10 [4A. Joint Deposit Where so desired, deposits may be accepted in joint  names not exceeding three, with or without any of the clauses namely, "Either or Survivor/s","Number one or Survivor/s", "Any one or Survivor/s".] PART II - ACCEPTANCE OF DEPOSITS 5. Acceptance of deposits by miscellaneous non-banking companies On and from the 1st July 1977, no miscellaneous non- banking company shall :- ( a ) receive any deposit repayable on demand or on notice, or repayable after a period of less than six months and more than thirty six months from the date of receipt of such deposit or renew any deposit received by it, whether before or after the aforesaid date unless such deposit, or renewal, is repayable not earlier than six months and not later than thirty six months from the date of such renewal: Deleted 11 Deleted 12 ( b )  receive or renew :- (i) "any deposit from a shareholder,  if the amount of such deposit already received and outstanding in the books of the company as on the date of acceptance or renewal of such deposits, exceeds fifteen per cent of its net owned funds" 13 (ii) "any other deposit, including non-convertible bonds or debentures". 14 {“Provided that where a miscellaneous non-banking company is holding any deposit accepted from any person other than its shareholders, the same shall be repaid on maturity and shall not be eligible for renewal”}. 15 16 [ Deleted] 17 [ [Deleted ] 18 [ Explanation Net owned fund means  - ( a ) the aggregate of the paid up equity capital and free reserves  as disclosed in the latest balance sheet of the company after deducting therefrom  - ( i ) accumulated balance of loss; ( ii )deferred revenue expenditure; and ( iii )other intangible assets; and ( b ) further reduced by the amounts representing ( 1 ) investments of such company in shares of ( i ) its subsidiaries; ( ii ) companies in the same group; ( iii ) all other non-banking financial companies; and ( 2 ) the book value of debentures, bonds, outstanding loans and advances (including hire purchase and lease finance) made to, and deposits with (i) subsidiaries of such company; and (ii) companies in the same group to the extent such amount exceeds ten per cent of (a) above. ] 6 . Particulars to be specified in application form soliciting deposit On and from the 1st July 1977, no miscellaneous non-banking company shall accept, renew or convert any deposit except on a written application from the depositor in the  form to be supplied by the company, which form shall contain all the particulars specified in the Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules, 1977, made under section 58A of the Companies Act, 1956 (1 of 1956). 7 . Furnishing of receipts to depositors ( 1 )Every miscellaneous non-banking company shall furnish to every depositor 19 [or group of  joint depositors] or his agent, unless it has done so already, a receipt for every amount which has been or which may be received by the company by way of deposit before or after the date of commencement of these Directions. ( 2 )The said receipt shall be duly signed by an officer entitled to act for the company in this behalf and shall state the date of deposit, the name of the depositor, the amount in words and figures received by the company by way of deposit, the rate of interest  payable thereon and the date on which the deposit is repayable. 8 . Register of deposits ( 1 ) Every miscellaneous non-banking company shall keep one or more registers in which shall be entered separately in the case of each depositor the following particulars, namely- ( a ) name and address of the depositor, ( b ) date and amount of each deposit, ( c ) duration and the due date of each deposit, ( d ) date and amount of accrued interest or premium on each deposit, ( e ) date and amount of each repayment, whether of principal, interest or premium, ( f ) any other particulars relating to the deposit. ( 2 ) The register or registers aforesaid shall be kept at the registered office of the company and shall be preserved in good order for a period of not less than eight calendar years following the financial year in which the latest entry is made of the  repayment or renewal of any deposit of which particulars are contained in the register: Provided that  if the company keeps the books of  account referred  to in sub-section (1) of section 209 of the Companies Act, 1956 (1 of 1956) at any place other other than its registered office in accordance with the proviso to that sub-section, it shall be sufficient compliance with this sub-paragraph if the register aforesaid is kept at such other place, subject to the condition that the company delivers to the Reserve Bank a copy of the notice filed with the Registrar under the proviso to the said sub-section within seven days of such filing. 9 . Information to be included in the Board's report ( 1 ) In every report of the Board of Directors laid before the company in general meeting under sub-section (1) of section 217 of the Companies Act, 1956 (1 of 1956) after the date of commencement of these directions, there shall be included in the case of miscellaneous non-banking company, the following particulars or information, namely : ( a ) the total number of depositors of the company whose deposits have not been claimed by the depositors or paid by the company after the date on which the deposit became due for repayment or renewal as the case may be according to the contract with the depositor or the provisions of these directions, whichever may be applicable, and ( b ) the total amount due to the depositors and  remaining unclaimed or unpaid beyond the dates referred to in clause (a) as aforesaid. ( 2 ) The said particulars or information shall be furnished with reference to the position as on the last date of the financial year to which the report relates and if the amounts remaining unclaimed or undisbursed as referred to in clause (b) of the preceding  sub-paragraph exceed in the aggregate the sum of rupees five lakhs, there shall also be included in the report a statement on the steps taken or proposed to be taken by the Board of Directors for the repayment of the amounts due to the depositors and remaining unclaimed or undisbursed. 20 [ Ceiling on the rate of interest and brokerage 9A 21 [(1)]   On and from 22 [April 24, 2007], no miscellaneous non- banking company shall :- ( a ) invite or accept or renew deposit on a rate of  interest exceeding 23 [twelve and a half] per cent per annum. Interest may be paid or compounded at rests which shall not be shorter than monthly rests: 24 [Deleted] [ 25 ( b ) pay to any broker for deposits collected by or through him, brokerage in excess of the rates specified below :- ( i ) where a deposit is for a period not exceeding one year

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2011-12/24 · issued 01 Jul 2011. The plain-English explanation above is BankPulse’s own independent summary.

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