Friday, 13 January 2012

Is Fixed Deposit with Bank an Investment under the Companies Act 1956

Let’s analyse if fixed deposit with bank is considered to be an investment under the companies act 1956 or not in different phases:

Phase 1:

In the Companies Act, Section 292, states certain powers of the Board that is required to be exercised at the Board meeting only. On an in depth analysis of the same, we can say 

 The power to invest the funds of the company (Sec 292 (1)(d))

Is to be exercised only at the board meeting.

Phase 2:

Let us analyse if fixed deposit forms part of investment. Investment normally means:
-         laying out of money in such a manner that it would produce some revenue.
-         It can be said that mere deposit of money is not considered to be an investment and
-         It must be possible to earn an income for a reasonable length of time. (Hence purchase of property for some purpose other than the receipt of income is not an investment)


On analyzing the above it can be said that placement of surplus of funds by a company in the fixed deposit with the banks to earn interest income thereon constitutes investment for the purpose of section 292(1)(d) of the Companies Act.

Board approval is required to be obtained in the Board meeting.

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