The practice of businessmen lending money to their suppliers was not illegal and would not come under the Money Lenders Act, the Supreme Court ruled on Wednesday.
The bench of Justices AK Mathur and Markandeya Katju said businessmen could lend money or advance some amount to suppliers for ensuring regular flow of goods. “Very often, one of the methods is that a 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,” it said, allowing an appeal filed by M/s P Vaikunta Shenoy & Company.
The petitioner had challenged a judgment of the Karnataka High Court, which held that businessmen lending money to suppliers was an offence under the Karnataka Money Lenders Act, 1961.
M/s P Vaikunta Shenoy & Company, which deals in areca nuts or supari, was periodically paying money in advance to its commission agent P. Hari Sharma to ensure regular supply of the raw material. It had filed a case for recovering Rs 72,000 from Sharma, claiming he owed the amount to Vaikunta Shenoy & Company. Sharma disputed the claim, contending that the company had lent him money despite not having the licence required under the Karnataka Money Lenders Act.
The high court had set aside a trial court rulling favouring the company. However, the SC upheld the trial court ruling saying the purpose of the act was to prevent money lenders from taking advantage of poor people.