Difference between deposits and loan
This query is : Open
30 January 2012
Sir As per sec. 3(1)(III) privated companies are restricted to accepts the deposits from the public now my question is that Is there any difference between the two terms loans & deposits accoding to the company law if private company accepts the loan from Public.
Please reply that can a private accept a loan from the public?
Please reply that can a private accept a loan from the public?
30 January 2012
"private company" 5[means a company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by its articles,-]
(a) restricts the right to transfer its shares, if any;
(b) limits the number of its members to fifty not including-
(i) persons who are in the employment of the company, and
(ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and
(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company;
6[(d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives:]
Note- Deposit is amount given for securing receipt of service. And loan is amount given which yields interest. When you receive the refund of deposit you will get the same amount but in case of loan, you will get interest too.
SO ACT DOES NOT PROHIBIT A PVT LTD COMPANY TO TAKE LOANS FROM PUBLIC, IT ONLY PROHIBITS ACCEPTANCE AND INVITATION OF DEPOSITS FROM PUBLIC...
Regards
(a) restricts the right to transfer its shares, if any;
(b) limits the number of its members to fifty not including-
(i) persons who are in the employment of the company, and
(ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and
(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company;
6[(d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives:]
Note- Deposit is amount given for securing receipt of service. And loan is amount given which yields interest. When you receive the refund of deposit you will get the same amount but in case of loan, you will get interest too.
SO ACT DOES NOT PROHIBIT A PVT LTD COMPANY TO TAKE LOANS FROM PUBLIC, IT ONLY PROHIBITS ACCEPTANCE AND INVITATION OF DEPOSITS FROM PUBLIC...
Regards
30 January 2012
Sir,
I understood the proper meaning of loan but I am not able to understand the meaning of Deposit you told me that in case of Public deposit public will not receive the amount of interest on such deposit.Now question arises in my mind that why the public will give the deposit to the company if public do not receive any interest or any amount of gain.
and you also told me that deposit is given for securing receipt of service Please tell me which I did not understand please give your answer with full example so that
help me to better understand
I understood the proper meaning of loan but I am not able to understand the meaning of Deposit you told me that in case of Public deposit public will not receive the amount of interest on such deposit.Now question arises in my mind that why the public will give the deposit to the company if public do not receive any interest or any amount of gain.
and you also told me that deposit is given for securing receipt of service Please tell me which I did not understand please give your answer with full example so that
help me to better understand
30 January 2012
Dear Ravi,
There is not very huge difference between Public Deposits and Loan...
When the funds are borrowed from Financial Institute, it is regarded as Loan..
Where the funds are borrowed from general public, it is regarded as Public Deposits..
Try to understand the Meaning of Public Deposit by Following Explanation...
Besides the issue of shares- equity and preference and debentures, a company can accept deposits from the public to finance its medium and short-term requirements of funds. This source has become very popular recently because, a company offers interest at a rate higher than offered by banks. Under this method, companies are able to obtain funds directly from public without financial intermediaries.
There is not very huge difference between Public Deposits and Loan...
When the funds are borrowed from Financial Institute, it is regarded as Loan..
Where the funds are borrowed from general public, it is regarded as Public Deposits..
Try to understand the Meaning of Public Deposit by Following Explanation...
Besides the issue of shares- equity and preference and debentures, a company can accept deposits from the public to finance its medium and short-term requirements of funds. This source has become very popular recently because, a company offers interest at a rate higher than offered by banks. Under this method, companies are able to obtain funds directly from public without financial intermediaries.
31 January 2012
Dear Sir,
When you explained me the first time you told
me that when we receipt the amount of deposit
we will get the same amount means without interest but now you explained me that company offers the interest higher than offered by the bank for short term requirement of funds which is called Public deposit
This term of explanation confused me.
When you explained me the first time you told
me that when we receipt the amount of deposit
we will get the same amount means without interest but now you explained me that company offers the interest higher than offered by the bank for short term requirement of funds which is called Public deposit
This term of explanation confused me.
02 January 2015
Greetings Ravi, Good evening
There is very little difference between loan and deposit
The explanation to Section 58A of the Companies Act supplies a wide
connotation to the term “deposit”. It states that the term “deposit” means
any deposit of money with, and includes any amount borrowed by a
company. Prima facie, the explanation suggests that loans are also deposits
within the meaning of the Act. This conclusion seems to be reinforced by
the definition of “depositor” under Section 2 (c) of the Acceptance of
Deposits Rules. Depositor is defined to include any person who has given
a loan to the company.
Thus we are left with a familiar but awkward situation where the
relevant statutes do not offer any help in drawing a distinction. The
distinction is to be found in the judgments of the Apex Court, which has
repeatedly pointed out that the distinction is fundamental.
In Annamalai v. Veerappa, the Supreme Court observed that although,
in a particular case, the term “loan” may include “deposits” but every loan
is not a deposit. Thus we can say that it is possible that a company can
accept the loan and same will be outside the purview of the law in relation
to acceptance of public deposit. The difference between the two terms can
be judged considering the following criteria:
The person making the deposit has no right to call back the deposit;
The deposit does not become a debt until the period for which the
money is deposited expires and
As a consequence the creditor has no right to recover the money before
the deposit period concludes.
After considering the above facts we can distinguish loan from the
deposit as:
The person lending the loan can demand the same at any time.
The amount of loan is treated as a liability from the time it is
accepted.
Lender can recover the money of loan without expiry of any
specified period as in case of deposit.
The Supreme Court has repeatedly held that whether a transaction is a
loan or a deposit will depend on the surrounding circumstances, the
relationship and character of the transaction and the manner in which the
parties treated the transaction.
Similar principles were laid down in the following cases:
o Ram Janki Devi v. Juggilal Kamlapat, AIR 1971 SC 2551
o Durga Prasad Mandelia v. Registrar, (1987) 61 Comp. Cas 479.
However despite of these it cannot be concluded that there exists no
confusion since the two overlap considerably.
Future of the above under the Companies Bill, 2012
The issues seem to be resolved under the Companies Bill, 2012. The bill
has given the definition of the term “deposit” in more precise terms so as
to remove the earlier confusions. The definition of the said term under the
Companies Bill, 2012 is as under:
Clause 2 (31): “deposit” includes any receipt of money by way of deposit
or loan or in any other form by a company, but does not include such
categories of amount as may be prescribed in consultation with the
Reserve Bank of India;
Hence under the Companies Bill, 2012 the term specifically includes the
“loan” hence clarifying the earlier confusions between the two terms.
Considering the explicit inclusion of the term “loan” in terminology of
“deposit” will amend the existing legal provisions and scope of the term
“deposit” will be widened. However specification of the categories of the
amounts becomes crucial in such a case as it will define the scope of
deposit and loan.
There is very little difference between loan and deposit
The explanation to Section 58A of the Companies Act supplies a wide
connotation to the term “deposit”. It states that the term “deposit” means
any deposit of money with, and includes any amount borrowed by a
company. Prima facie, the explanation suggests that loans are also deposits
within the meaning of the Act. This conclusion seems to be reinforced by
the definition of “depositor” under Section 2 (c) of the Acceptance of
Deposits Rules. Depositor is defined to include any person who has given
a loan to the company.
Thus we are left with a familiar but awkward situation where the
relevant statutes do not offer any help in drawing a distinction. The
distinction is to be found in the judgments of the Apex Court, which has
repeatedly pointed out that the distinction is fundamental.
In Annamalai v. Veerappa, the Supreme Court observed that although,
in a particular case, the term “loan” may include “deposits” but every loan
is not a deposit. Thus we can say that it is possible that a company can
accept the loan and same will be outside the purview of the law in relation
to acceptance of public deposit. The difference between the two terms can
be judged considering the following criteria:
The person making the deposit has no right to call back the deposit;
The deposit does not become a debt until the period for which the
money is deposited expires and
As a consequence the creditor has no right to recover the money before
the deposit period concludes.
After considering the above facts we can distinguish loan from the
deposit as:
The person lending the loan can demand the same at any time.
The amount of loan is treated as a liability from the time it is
accepted.
Lender can recover the money of loan without expiry of any
specified period as in case of deposit.
The Supreme Court has repeatedly held that whether a transaction is a
loan or a deposit will depend on the surrounding circumstances, the
relationship and character of the transaction and the manner in which the
parties treated the transaction.
Similar principles were laid down in the following cases:
o Ram Janki Devi v. Juggilal Kamlapat, AIR 1971 SC 2551
o Durga Prasad Mandelia v. Registrar, (1987) 61 Comp. Cas 479.
However despite of these it cannot be concluded that there exists no
confusion since the two overlap considerably.
Future of the above under the Companies Bill, 2012
The issues seem to be resolved under the Companies Bill, 2012. The bill
has given the definition of the term “deposit” in more precise terms so as
to remove the earlier confusions. The definition of the said term under the
Companies Bill, 2012 is as under:
Clause 2 (31): “deposit” includes any receipt of money by way of deposit
or loan or in any other form by a company, but does not include such
categories of amount as may be prescribed in consultation with the
Reserve Bank of India;
Hence under the Companies Bill, 2012 the term specifically includes the
“loan” hence clarifying the earlier confusions between the two terms.
Considering the explicit inclusion of the term “loan” in terminology of
“deposit” will amend the existing legal provisions and scope of the term
“deposit” will be widened. However specification of the categories of the
amounts becomes crucial in such a case as it will define the scope of
deposit and loan.
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