Section 180(1)(c)- Borrowings by company

Save Share

This query is : Resolved

Quick Summary

This discussion clarifies the definition of 'temporary loans' when calculating a company's borrowing threshold under Section 180(1)(c). While temporary loans repayable on demand or within six months are excluded, the nature of trade credit, standby letters of credit, overdrafts, and bank guarantees is examined. Trade credit may qualify as a temporary loan if it meets the six-month repayment criteria. Standby letters of credit and bank guarantees, being non-fund based facilities, are generally not considered loans under this section, as liability only arises if the bank pays out under the guarantee.

ayushi lavania

ayushi lavania (Querist)

05 July 2022 While calculating the threshold limit of borrowings by a company, the temporary loans are excluded. My query is whether Trade credit, Stand by letter of credit, Overdraft and bank guarantees forms part of the term Temporary loans?

Adv. Ravish Bhatt, ADIT, CIOT

Adv. Ravish Bhatt, ADIT, CIOT (Expert)

25 July 2022 In explanation to s.180(1)(c), "Temporary Loans" are defined to loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character.

The explanation gives only the illustrations with the defining feature of Temporary Loan being a loan repayable on demand or within six months from the date of the loan such as short term. So, if trade credit satisfies this condition, it can fall within the ambit of Temporary Loan and not within the meaning of money already borrowed. Position with regard to Stand By Letter of Credit and Bank Guarantees may be debatable as they are Non-Fund based limits. I do not see them as loans within the meaning of s.180(1)(c) (Although they may be loans for other purposes); rather they are simply in the nature of guarantees and liability of a company will arise upon demand by the bank once bank pays under the bank guarantee.

ayushi lavania

ayushi lavania (Querist)

25 July 2022 Thanks for the clarification

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now