Microlesson · 5-min read

Penal Rate of Interest on Overdue Deposits (Rule 17)

# Penal Rate of Interest (Rule 17)

## Rule

Where a deposit (or interest on it) is overdue, the company must pay a penal rate of interest @ 18% per annum for the overdue period.

## Application

Applies from the date the deposit/interest becomes due until the date of actual repayment.
18% is the statutory minimum penal rate; not a ceiling on what the company may contractually offer.

## Purpose

A deterrent — encourages timely repayment and protects depositors from defaults.

Worked example

### Example 1

Example: XYZ Ltd. accepted a deposit of Rs. 10 lakh at 9% p.a., maturing 31-Mar-2025. Repayment is delayed until 30-Jun-2025 (3 months overdue). Penal interest for the overdue period = Rs. 10 lakh × 18% × 3/12 = Rs. 45,000.

⚠️ Common exam mistakes

Applying the contracted rate during the overdue period — the statutory 18% applies.
Computing 18% from the date of deposit instead of from the date the amount became due.
Believing 18% applies only to the principal — it can apply to overdue interest too.

Bare-Act text Rule 17, Companies (Acceptance of Deposits) Rules, 2014 · Companies Act, 2013 · click to expand

A penal rate of interest of 18% per annum shall be paid for the overdue period.

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