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Sec185 of com act 13

ashana (student) (39 Points)

06 October 2014

Sec 185 of com act 13 say that advance any loan including any loan represented by a book debt to a specified person treated as loan to director ....... Qes - A com offer flat to MD who pay 50% amount immediately & contract to pay balance amount in installmemt .Does this amount to loan to director as per sec 185 of com act 13?

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3 Replies

Kishor Bhat (CA final CS executive (from Bangalore)) (1881 Points)
Replied 06 October 2014

No. It does nt amount to 'loan to director'. It amounts to credit sale resulting in a debt. The same facts were decided in the case of Dr.Fredie Ardeshir Mehta Vs UOI. So, sec 185 does nt apply to the above transactions.

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ashana (student) (39 Points)
Replied 22 October 2014

credit sale treated as a book debt ( debtor)

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 22 October 2014

Whether a particular transaction is in the nature of loan or not will depend upon facts and circumstances of each case. Bombay High Court in the case quoted above had held that sale on credit is not a loan. We have to consider here whether final sale deed has been executed in favour of the MD without getting full amount or only an agreement to sale has been executed. If only agreement has been executed, there should be no problem. However, if final sale deed has been executed, the question will arise whether it is a common practice to sell immovable property on credit? If not, why the transaction should not be treated as a loan?