Borrowing of money in the ordinary course of business

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Querist : Anonymous

Querist : Anonymous (Querist)

18 April 2015 Dear all

I would be highly obliged if anyone can clear my doubt on whether borrowing of money by a company is in the ordinary course of its business.

Thanks

Pratik Shah

Pratik Shah (Expert)

20 April 2015 Can you please tell us in which context you have this query? Is this related to specific section?

Querist : Anonymous

Querist : Anonymous (Querist)

20 April 2015 Hi

Specific section cannot be referred here, its just a general query. Otherwise Section 179 of CA 2013 can be taken into consideration.

My question is, is borrowing of money by a company be considered as an activity in its ordinary course of business.

Thanks

Querist : Anonymous

Querist : Anonymous (Querist)

Pratik Shah

Pratik Shah (Expert)

20 April 2015 It can not be considered as an activity in its ordinary course of business.

Querist : Anonymous

Querist : Anonymous (Querist)

21 April 2015 Any reference to substantiate?

Querist : Anonymous

Querist : Anonymous (Querist)

21 April 2015 Any reference to substantiate?

Pratik Shah

Pratik Shah (Expert)

21 April 2015 In the Act, there is no definition provided for borrowing in ordinary course of business. It differs from section to section.

If you see Section 180(1)(c), here you can say that borrowing of temporary loan can be considered as ordinary course of business.

It does not specify if a company borrow money from another entity/person (not from bank), will it be treated as ordinary course of business or not?

It differs from context to context, because it is not defined in Companies Act.

Querist : Anonymous

Querist : Anonymous (Querist)

21 April 2015 Completely agreed.

But in my view , a company in its day to day running of business frequently requires funds to meet its obligations, and in order to meet those obligations, approach lenders which could be an NBFC, bank or other entity to borrow for a short period say for a year and which might trigger Section 188( Related party transactions).

I believe that such borrowings would also be considered as a transaction in its ordinary course of business .

thanks

Pratik Shah

Pratik Shah (Expert)

21 April 2015 Your view is also correct but finally it is a matter of interpretation (when something is not defined in the law).

Querist : Anonymous

Querist : Anonymous (Querist)

21 April 2015 Thank you for your valuable inputs!!

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