Conteravention of Sec 58A of Companies Act

Hi,

No.  A private co. can not accept deposits or unsecured loans from persons other than directors, members and their relatives. The same is prohibited by section 3(1)(iii)(d).

 Distinction between Loan and Deposit

1. In the case of a deposit, the delivery of money is usually at the instance of the giver and it is for the benefit of the person who deposits the money. Deposits could 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.

2. The borrowing is primarily for the benefit of the borrower although the person who tends 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.

3. 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.

Regards

Hi

I agree with the above replies.

However, Section 58A has a loophole too.

Section 58A says that the Private company can accepts deposits from the Friends too.

And It is known to all that word "Friend" has no definition at all.

Because we can make friends at any point of time at any place in the world.

Ankur Shah (Practicing Company Secretary)

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