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Issues: Whether fixed deposits made by the company with other companies constituted "loans" within the meaning of section 370 of the Companies Act, 1956, so as to attract the penal consequences under section 371 of the Companies Act, 1956.
Analysis: The statutory context showed that the Companies Act, 1956 used the expressions "loan" and "deposit" distinctly in different provisions. Section 58A treated deposits as a separate category and expressly included borrowed money within deposits, while section 227(1A)(d) also indicated that loans and deposits were not interchangeable expressions. The legal nature of the two transactions was different: a deposit is ordinarily made at the instance of the giver for the depositor's benefit, whereas a loan is advanced at the instance of the borrower for the borrower's needs. The obligation to repay also differs, and prior authorities recognised that the question whether a deposit amounts to a loan depends on the terms and context of the transaction. Since section 370 created a penal exposure under section 371, the word "loan" could not be expanded beyond its ordinary meaning in the absence of clear statutory language making deposits equivalent to loans.
Conclusion: The fixed deposits were not loans for the purpose of section 370 of the Companies Act, 1956, and no contravention attracting section 371 was made out. The petitioners were entitled to relief.
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