Mumbai: Lending or money or making advance payments to suppliers for ensuring regular supply of goods cannot be classified as money lending nor can it be termed illegal, the Supreme Court has ruled.
Advance payment of money made in the course of business activity cannot be perceived as a money lending business as it is only one of the various methods that businessmen adopt to ensure smooth running of their business, the court said.
The ruling was made by a bench comprising justices A K Mathur and Markandeya Katju on a petition filed by P Vaikunta Shenoy & Co challenging a judgement of the Karnataka high court, which had ruled that lending of money by businessmen to their suppliers amounted to money lending activities as specified under the Karnataka Money Lenders Act, 1961.
"Very often, one of the methods is that the businessman advances money to his supplier of goods to ensure that the supplies are regular and are made to him rather than being diverted to other parties. There is nothing illegal in this practice and it is widespread," the apex court observed while allowing an appeal filed by a business house.
The petitioner, an`arecanut'''' dealer used to periodically pay advances to its commission agent, P Hari Sharma to ensure regular supplies.
According to the company, Sharma who owed an amount of Rs72,044 after some time, refused to pay the amount, forcing the company to file a suit for recovery of the amount before a trial court.