Deposits are not the same as loans but are, rather, in the nature of a trust enjoined upon the company accepting the funds to return them on time, even if the firm has gone sick. This salutary principle was laid down by the Delhi High Court, in Cement Corporation of India v. Popular Foundation of India .

The Respondent had placed a deposit of Rs 75 lakh and, on the petitioner claiming inability to repay the loan, had obtained an order from the Company Law Board in its favour, mandating repayment of both principal and interest.

Aggrieved, the petitioner had moved the Delhi High Court, with which, however, the alibi and plea of sickness for non-payment and immunity from recovery proceedings did not wash. The Court pointed out that the prohibition contained in Section 22(1) of the SICA against coercive proceedings against properties of a sick company did not extend to deposits made in trust.

The depositor was merely asking for return of money placed in trust without filing any suit for recovery, said the High Court pointing to the distinction between loan and deposits.

The Delhi Court quoted with approval the apex court which, the in Vijaya Mills case, had held that sales tax recovered from customers did not enjoy automatic stay against recovery proceedings against a sick company inasmuch as the tax recovered from customers was not the sick company’s property but the property of the government, lying in trust with the company.

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