The concept of deposits was first introduced in 1974 through the Companies (Amendment) Act 1974, the said amendment was brought to curb the practices, that once the deposits were accepted by a company, the concerned company was not in the position to repay the same at the time of maturity.

Section 2 (31) of Companies Act, 2013 (“Act”) defines the term deposits as an inclusive definition, which states that deposit includes any receipt of money or loan or in any other forms by the company, however, Rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014 (“DPT Rules”) provides some sort of exemptions for the transactions which would not be constituted as deposits. Moreover, section 45I (bb) of the Reserve Bank of India Act, 1934 (“RBI Act”) as well as section 28 of The National Housing Bank Act, 1987 (“NHB Act”), follows a similar scheme in respect of defining the term deposits, as provides in the Act.

Deposits

The definition of deposits can be bifurcated into four different phases:

  • Any receipt of money,
  • Loan,
  • In any other form,
  • Exempted transaction.

The aforesaid definition of deposit is very vast, that any transaction which would stick to the tentacles of the said definition, the concerned company need to comply with the provisions of section 73 to 76A of the Act, if the concerned company fails to comply with any of the provisions of the said sections, then the concerned company shall be liable to the very harsh penal provisions, these provisions may be found oppressive upon the company entering into a clean transaction of borrowing. Applicability of provisions of the said sections would depend upon a single question that, whether the transaction would come under the ambit of this definition of Deposits?

As the definition of deposits as provided under section 2(31) of the Act, is very wide worded, the following question may arise from the analysis of the said definition:

  • Whether every loan which will not fall under any exemption of deposits, shall be considered as deposits under the Act?

The difference between loans and deposit is very thin. In both, the scenario, the relationship of debtor and creditor would be created. These two terms should not be construed as the same, because it will be very difficult for the borrowing company to comply with all provisions applicable to the deposits, every time whenever the company is borrowing.  In this view let us consider some case laws:

Pennwalt India Ltd. v. Registrar of Companies [1987] 62 COMP. CAS. 112 (BOM)

under section58A, which deals with deposits, the Explanation provides as follows:

“For the purposes of this section, ‘deposit’ means any deposit of money with, and includes any amount borrowed by, a company but shall not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India”.

This section, therefore, contains an express provision which includes, in the term “deposit”, monies borrowed by a company also. If a deposit and a loan were synonymous, there would be no need for such a provision.

Ram Ratan Gupta v. Director of Enforcement AIR 1966 SC 495,

The supreme court held that “It is settled law that the relationship between a banker and a customer qua moneys deposited in the bank is that of a debtor and creditor. Though, ordinarily a deposit of an amount in the current account of a bank creates a debt, it does not necessarily involve a contract of loan. The question whether a deposit amounts to a loan depends upon the terms of the contract under which the deposit is made.”

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.

Ram Janki Devi v. Juggilal Kamlapat AIR 1971 SC 2551 = (1971) 1 SCC 477

Deposit is something more than a mere loan of money. It will depend on facts and circumstances of each case

Durga Prasad Mandelia vs ROC [1987] 61 COMP. CAS. 479 (BOM) read with Annamalai Chettiar vs. S.V.V.S. Veerappa Chettiar, AIR 1956 SC 12

The terms “deposit” and “loan” may not be mutually exclusive, but none the less in each case what must be considered is the intention of the parties and the circumstances.

For the purpose of differentiation of loans and deposits, these cases had referred to the Indian Limitation Act, 1908.

Relevant articles of Schedule I of Limitation Act, 1963 are as under:

Sr.no. Articles No. Particular Period of limitation Event when limitation period shall be started
1. 19 For money payable for money lent. Three years When the loan is made.
2. 21 For money lent under an agreement that it shall be payable on demand. Three years When the loan is made
3. 22 For money deposited under an agreement that it shall be payable on demand, including money of a customer in the hands of his banker so payable Three years When the demand is made.
4. 62 To enforce payment of money secured by a mortgage or otherwise charged upon immovable property Twelve years When the money sued for becomes due.

As per the provision of Rule 3(1)(a) of DPT Rules, clearly states that no company shall accept any deposit which is repayable on demand, therefore, Article 22 above found irrelevant for this purpose.

Form the analysis of aforesaid articles of schedule I of Limitation Act, 1963, a question would arise that where a company accepts secured deposits than the period of limitation should be 12 years from the date when the repayment would become due i.e. the date of maturity.

Example:

ABC Ltd. has accepted an amount of Rs. 1,00,000 as a loan from Mr. X for five years at 10% per annum, under a condition that the loan shall be repaid in twenty quarterly equal installments.

This loan shall not be considered as deposits for the purpose of the Act, as the loan is to be repaid in installments, but the deposits are to be repaid at the time of maturity.

If in the aforesaid case the loan is not required to be repaid in installments, but at the time of maturity of five years, then it will be considered as a clear violation of Chapter V of the Act.

Conclusion

From aforesaid it can be understood that the difference between the loan and deposits is very thin, but the differentiation is very much necessary for the purpose to check the applicability of Chapter V and other relevant provisions of the Act. It would depend upon the interest and intention of the parties entering into the contract, and the color they intend to give to the proposed transaction. It shall be decided on case to case basis.

Some loans may be deposits and some deposits may be loans. But all loans are not deposits or vice versa.

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Author – CS Yash Jain, any person may contact me at yashjain1309@gmail.com for any kind of suggestions and discussion.  

Disclaimer: The contents of this article are for information purposes only and do not constitute advice or legal opinion and are personal views of the author. This article is just based on a little research done by the author. Readers are requested to check and refer relevant provisions of the statute, latest judicial pronouncements, circulars, clarifications, etc. before acting based on the above article.

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