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

TL;DR

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

The rules around deposits are among the most commonly misunderstood compliance obligations for Indian companies. Many private limited companies are unaware that accepting money from certain parties — even from their own shareholders — can trigger the Companies (Acceptance of Deposits) Rules and require specific filings with the ROC. This guide explains when the deposit rules apply, what NDH-1 and NDH-2 are, and how to stay compliant.

When Do Deposit Rules Apply

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

Public Companies: Public companies are generally permitted to accept deposits from their members subject to the following:

• 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 are generally prohibited from accepting deposits from the public (i.e., from more than 50 persons). However, 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 (and not from the public), it is generally exempt from most of the deposit rules — but it must still comply with the reporting requirements.

What Is a Deposit Under the Rules

The definition of “deposit” under the Companies Act is broad and catches many transactions that businesses would not ordinarily 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 specifically exclude:

• 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) is the one-time return that companies had to file under the original Companies (Acceptance of Deposits) Rules, 2014, to declare the details of all outstanding deposits as on the date of commencement of those rules.

This return has largely been replaced by the current reporting framework. However, companies that had outstanding deposits when the rules came into force would have filed NDH-1 to declare those deposits and 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 (covering the period ending September 30)
• October 1 to March 31: File by April 30 (covering 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. It is filed 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. A private company that accepts deposits only from its members and directors (and not from the public) is exempt from:

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

However, 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)
• Has filed a declaration to this effect with the ROC

Penalties for Non-Compliance

Accepting Deposits in Violation:

• The company is liable to pay a penalty of ₹1 crore or twice the amount of deposit accepted (whichever is lower) but not less than ₹25 lakhs
• Every officer in default is punishable with imprisonment up to 7 years and a fine

Failure to File NDH-2:

• Late filing fee of ₹100 per day of default (no maximum)
• The company and its officers may face prosecution for non-filing

Failure to File DPT-3:

• Late filing fee similar to NDH-2
• The company and officers may face prosecution

Practical Compliance Checklist

1. Audit your deposit position: Review all money received by your company — from shareholders, directors, and others. Determine whether any of these are “deposits” under the rules.
2. Confirm exemption status: If you are a private company that has only accepted money from members and directors, confirm that you are within the exemption limits.
3. File NDH-2 on time: If you have outstanding deposits and are required to file NDH-2, ensure it is filed by October 31 (for April-September period) and April 30 (for October-March period).
4. File DPT-3 annually: 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 triggers serious criminal liability.
6. Separate deposits from business advances: Ensure that customer advances for goods and services are properly 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. If you receive money from a customer for a future delivery of goods or services:

• If the advance is refundable (i.e., the customer can ask for their money back if you don’t deliver), it may be classified as a deposit
• If the advance is adjustable against future invoices (i.e., it gets consumed into the price of the goods), it is generally treated as a business advance and not a deposit

Keep clear documentation that distinguishes between:

• Refundable deposits (where the customer has a right to demand repayment)
• Advance payments for goods and services (where the money is consumed into the transaction)

This distinction is critical for maintaining your compliance posture under the deposit rules.