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Section 185

06 March 2017

A Private limited company sells goods on credit to indicidual and partnership firm; where working director of such company, is directly and indirectly intrested. Can company sale goods on credit to such individual or firm? Would such transaction amount to breach of Section 185 of Companies Act? Is anything provided otherwise in the act; which can be put as exclusion of above deal from operation of Section 185 of the Act?

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3 Replies

Jatin Bajaj (CS) (2930 Points)
Replied 07 March 2017

AS PER SECTION 185 OF THE COMPANIES ACT 2013 , NO COMPANY SHALL DIRECTLY OR INDIRECTDLY ADVANCE ANY LOAN INCLUDING LOAN REPRESENTED BY BOOK DEBTS. MEANS COMPANY CANNOT SOLD GOODS ON CREDIT . FOR EXAMPLE : IF WE SELL GOODS ON CREDIT TO THE COMPANY IN WHICH DIRECTOR IS INTERESTED AND THEN SUCH A OUTSTANDING AMOUNT IS TREATED AS BOOK DEBT WHICH IS PROHIBITED BY SECTION 185

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Ravi Kiran Vustela (Knowledge Seeker) (1353 Points)
Replied 07 March 2017

rightly said by jatin Sir.....
however it is private limited company... there are 3 conditions given by MCA on 5th June 2015... if the private company satisfies all the three conditions. it can go (185 is not applicable to private companies subject to fulfilment of All the 3 conditions)

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Bala (Chartered Accountant) (43 Points)
Replied 09 March 2017

Hello Ankit,

In my view, your query of normal business transaction (it is a debt outstanding and not loan advanced) should get sheltered u/s 188. A Board approval should suffice to cover the business transaction stated in your example.

Hope this helps.

Tnx

Balaji Srini FCA., LL.B.