1986 (2) TMI 272 - HC - Companies Law

Summary

Issues Involved:
1. Applicability of Section 370 of the Companies Act, 1956, to deposits made by the company.
2. Distinction between loans and deposits under the Companies Act, 1956.
3. Penal consequences under Section 371 of the Companies Act, 1956, for non-compliance with Section 370.

Summary:

1. Applicability of Section 370 of the Companies Act, 1956, to deposits made by the company:
The company received a show-cause notice dated June 12, 1984, from the Registrar of Companies u/s 370 and 371(1) of the Companies Act, 1956, for exceeding the 30% limit prescribed u/s 370(1)(a) without obtaining prior approval of the Central Government. The company replied that Section 370 does not apply to deposits made by the company, asserting that the deposits are not loans as contemplated under Section 370.

2. Distinction between loans and deposits under the Companies Act, 1956:
The court examined whether the deposits made by the petitioner company are to be considered as loans. It was noted that the dividing line between a loan and a deposit is thin, but they are not synonymous. The court referred to various legal precedents and provisions under the Companies Act, 1956, and other laws to highlight the distinctions. For instance, Section 58A of the Companies Act includes borrowed money in the term "deposit," indicating that loans and deposits are not interchangeable unless expressly stated. The court concluded that the deposits in question should be considered as deposits and not loans, as there was no provision u/s 370 that includes deposits within the meaning of loans.

3. Penal consequences under Section 371 of the Companies Act, 1956, for non-compliance with Section 370:
Section 371(1) prescribes penalties for contravention of Section 370. The court emphasized that penal provisions require clear and explicit terms. Since Section 370 does not explicitly include deposits within the term "loans," the company cannot be penalized under Section 371 for the deposits made. The court ruled that the word "loan" in Section 370 cannot be interpreted to include deposits without explicit provision.

Conclusion:
The court made the rule absolute in terms of prayer (a) of the petition, quashing the impugned complaint and summons. There was no order as to costs.