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TMI Blog1986 (2) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... eading, on the assets side of the balance-sheet, the amounts of the deposits are shown under the sub-heading "deposits with joint stock companies". 4. For the period ending October 31, 1980, the company had so deposited a sum of ₹ 50,00,000 in various joint stock companies. The particulars of these investments are set out in exhibit "C" to the petition. The deposits are with companies such as National Organic Chemical Industries Limited, Tata Oil Mills Mahindra & Mahindra Limited, The Indian Hotels Company Limited and other reputed and independent companies. The amount of deposits in the aggregate exceeds 30 per cent. of the subscribed capital of the appellant company and its free reserves. 5. The company received a show-cause notice dated June 12, 1984, from the office of the Registrar of companies under sections 370 and 371(1) of the Companies Act, 1956, for exceeding the 30% limit prescribed under section 370(1)(a) of the Companies Act, 1956, without obtaining prior approval of the Central Government. Under this notice, the company and its directors were called upon to show cause why the penal provisions under section 371(1) of the Companies Act, 1956 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or section 370 excluding sub-section (1C) or (1D), or section 370A including in particular any person to whom the loan is made, or in whose interest the guarantee is given or the security is provided, shall be punishable with fine which may extent to five thousand rupees or with simple imprisonment for a term which may extend to six months." 11. Under the second proviso to section 370 of the Companies Act, the aggregate of the loans made by a company to all bodies corporate shall not exceed, without the prior approval of the Central Government, thirty per cent of the aggregate of the subscribed capital of the lending company and its free reserves where all such other bodies corporate are not under the same management as the lending company. The only question which arises in the present case is whether the deposits made by the petitioner (appellant) company are to be considered as loans given by it to the other companies. The petitioner company has not obtained approval of the Central Government. If the deposits in question are covered by section 370, the company would be liable to penalties as prescribed under section 371 of the Companies Act. If deposits are not to be constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could also be for safe-keeping or as a security for the performance of an obligation undertaken by the depositor. In the case of a loan, however, it is the borrower at whose instance and for whose needs the money is advanced. The borrowing is primarily for the benefit of the borrower although the person who lends the money may also stand to gain thereby by earning interest on the amount lent. Ordinarily, though not always, in the case of a deposit, it is the depositor who is the prime mover while in the case of a loan, it is the borrower who is the prime mover. The other and more important distinction is in relation to the obligation to return the amount so received. In the case of a deposit which is payable on demand, the deposit would become payable when a demand is made. In the case of a loan, however, the obligation to repay the amount arises immediately on receipt of the loan. It is possible that in the case of deposits which are for a fixed period or loans which are for a fixed period, the point of repayment may arise in a different manner. But, by and large, the transaction of a loan and the transaction of making a deposit are not always considered identical. 16. In the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he two terms are not mutually exclusive". He submitted that a loan includes a deposit. This submission cannot be accepted. The Privy Council was referring to the fact that both these transactions involved bailment of money. It went on to distinguish the two for the purpose of the Limitation Act on the basis of the mode of repayment, The Privy Council's observations cannot be read to mean that a loan would include a deposit. The Privy Council observed that certain features are common to the two transactions while certain features are not. In some cases, a deposit, for example, with a bank, may amount to a loan with conditions. The Privy Council went on to say that the two transactions were distinct. The Supreme Court in the case of Ram Ratan Gupta, [1966] 36 Comp Cas 49, considered even a bank deposit as distinct from a loan. It is therefore clear that "loan" and "deposit" are not identical in meaning and cannot always be interchanged. Some loans may be deposits and some deposits may be loans. But all loans are not deposits or vice versa. 19. A single Judge of the Rajasthan High Court, however, in the case of Totalal v. State, , held that for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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