Sunday, July 15, 2012

Money Lenders are Village ATM

Money Lenders are Village ATM

Money lending business is risky business,one of the most difficult and embarrassing  aspect of business is recovering the money from the debtors.There is due procedure established by law for recovery of the money from the debtors like filling civil suit in civil courts,in several cases,High Courts and Supreme Court maintained that creditors should follow "Due Procedure Established by Law",came down heavily on creditors for coercive methods  i.e  Money Lenders,Finance companies,Banks and Micro Finance,while recovering the debt from debtors.    

There is huge short fall of rural finance,despite governmental schemes like "Paula Vaddi" and Women SHG,as cost of agriculture production has increased manifold proportions due to green revolution and more over ,rural people are also becoming materialistic and consumerist like urban counter parts.The ugly dowry system has spread to rural society.

The AIl India Debt and Investment Survey (NSS Fifty-Ninth Round) has revealed that share of institutional agencies in the total cash dues of urban households had increased from 72 per cent in 1991 to 75.1 per cent in 2002 and that of moneylenders had also increased during the period from 10.2 per cent to 14.1 per cent.
There were two legislation pertaining to money lending business in A.P ,i.e. Telangana Area Money Lenders Act, 1349 Fasli and  Andhra Region Schedule Area Money Lenders Regulation, 1960.

It is well established that  money lender cannot claim debt or liability from his debtors without valid money lending licence. But money lenders[Dora/Patel or Thakur]of villages of Telangana carry money lending business[instant finance] without obtaining any statutory license and indulging in forceful recovery of the loan amount ,double the principle amount ,which is against the RBI guidelines.It will also leads to servitude and slavery of poor villagers in the hands of influential money lenders,eventually,creditors will not only dominate the village  politically, but also every aspect of village life.The coercive tactics results in dehumanization of debtors ,resulting suicides effecting the stability of the society. 

In Kamala Mani V Subrmanyam 1980(2) Alt 178  "the Legislature has willfully and deliberately chosen to restrict the scope of the meaning of the expression ''loan'' only to cases of advances made with interest" 

The most of the hand loans lend to poor villagers are through oral agreements or amount entered in their personal diaries ,where they don't even enter principle amount with rate of interest,which is against statutory provisions.Some of the hand loans does  come under legal scrutiny  and  does not come under purview of the Money Lenders Act,1349 Fasli,[Trader to Trader ]    

What Money Lenders  Act says:

Who is money lender ,the legal enforceability of debt and what is debt as defined in the Andhra Pradesh (Telegana Area) Money Lenders Act, 1349 Fasli

 The Money Lenders Act. Act No. V of 1349 F. Was passed by the erstwhile Hyderabad Government and its preamble is as follows:-

"Whether it is expedient to regulate the transactions of money lending and to make better provision for its control; it is hereby enacted as follows:-
Section 2 (4) defines the loan as follows:"Loan" means a loan secured or unsecured, advanced on interest in cash or in kind and shall include every transaction which is in substance a loan but shall not include the following:

....(g) a loan advanced by one trader to another trader in the ordinary course of business, in accordance with practice in trade."

Section 2 (7) defines the money lender as follows:-

"(7) 'Money lender' means a person including a pawn broker, who within the meaning of this Act, only advances loan in the ordinary course of his bossiness or does so along with other business, and shall also include the legal representative of such person and the person claiming to be his representative on the ground of succession or assignment or otherwise."

Section 3 provides for registration of money lender,. Sub-section (5) (a) of Section 3 is as follows:

"No money-lender shall carry on in any district the business of money lending without obtaining a licence provided for in sub-section (2)

(b)if any person contravenes the provisions of clause (a) he shall be punished with rigorous imprisonment for a term which may extend to six months or with fine or with both. The fine imposed shall in case of default be recoverable as arrears of land revenue. The Taluqdar shall have power to award punishment, under this clause. An appeal against his order shall lie to the Sessions Judge.

(c) An offense under this sub-section shall be cognisable and bailable."

Section 5 provides for the maintenance of accounts and the furnishing of statements thereof to debtors by money lenders. Section 6 applies to additional accounts to be maintained by pawn brokers. Section 9. Which provides for the procedure of court is as follows:

"Notwithstanding anything contained in any law for the time being in force, in every suit relating to loan.

(1) The Court shall frame and decide the issues wither the money leader is a money lender as defined in sub-section (7) of Section 2 and whether he has complied with the provisions of Section 3 and of clauses (a) and (b) of sub-sec. (1) of Section 5, and sub-sections (1) and (2) of Section 6.

(2) If it is proved that the plaintiff is a money lender as defined in sub-section (7) of Section 2 but does not hold a licence granted under Section 3 the Court shall dismiss his suit.

(2-A) If it is proved that the money lender has not complied with the provisions of clause (a) of sub-section (1) of section 5 or of sub-section (1) of Section 6 or of section 8 and the plaintiff's claim is established in whole or in part, the Court may, in the circumstances of the case, disallow the whole or any portion of the interest due and may disallow the cost wholly or in part.

(3) If is proved that the money lender has not furnished the debtor with a statement of account in accordance with the provisions of clause (b) of sub-section (1) of Section 5 or sub-section (2) of Section 6 the court shall in computing the amount of interest, exclude the interest in respect of every period for which the money-lender has not furnished the debtor with the statement of account."


"From a reading of the above provisions it is clear that the object of the Act is to serve the public purpose and protect the borrowers from unscrupulous and usurious money lenders by prohibiting them from lending moneys without obtaining licence on pain of imprisonment as well as by empowering courts to dismiss the suits of such money lenders"
The Legal enforceability -Valid License

Baba Finance Corporation V. Mohd. Nayeem And Another: (1997(1) ALD (Crl) 719 (AP)) in which it was held as under:"... if it is proved that the plaintiff is a money-lender as defined under the Act {A.P.(T.A) Money Lenders Act} and if he does not possess licence in question, the Court shall dismiss his suit. In other words, such a money lender cannot claim debt or liability from others, from his debtors without valid money lending licence. ...." 

Veralaxmi v. Syed Kasim Hussain 1962 (2) Andh WR 137:AP High Court DB

"The scope of money-lenders under the Hyderabad Money-Lenders Act is discussed in this case. The Division Bench of A.P High Court observed "that in order to fall within the definition of money-lender it would not merely to show that the man had on several occasions lent money at remunerative rates of interest. There must be certain degree of system and continuity about the transactions. It is further held that the definition of money-lender envisaged only those classes of persons whose regular business is to advance moneys and not to those who advance moneys casually."

Munagala Yadagiri v. Pittala Veeriah 1958(1) Andh WR 413:AP High Court -DB

In this case it was held by the Division Bench of A.P High  Court that "if a professional money-lender who has not obtained a licence cannot maintain a suit for recovery of amounts. It is further held that a person who seeks to non-suit the plaintiff should necessarily allege and prove that the plaintiff is a professional money-lender. "Obviously, the plaintiff cannot prove the negative viz., that he is not a professional money-lender, it is for the defendant to allege and prove that the plaintiff is a professional money-lender."

Somanath Baraman v. Jagannatha Rao: AIR 1973 AP 144: APHC DB

"A stray or casual transaction by a person not possessing the licence would not amount to a transaction done in the ordinary course of business."

Kaloji Talusappa Gangavathi vs Khyanagouda And Ors. on 9 April, 1970:AIR 1970 SC 1420, (1970) 3 SCC 862

"Section 9 of the Hyderabad Money Lender Act clearly establish that if it is found that the plaintiff was carrying on business as a money-lender on the date of the transaction without a licence the Court is bound to dismiss the suit."

Mc. Gardie. J. In Edgelow v. Mac Elwee (1918 ) 1 KB 205 at p. 206
"A man does not become a money lender by reason of occasional loans to relations, friends or acquaintances whether interest be charged or not. Charity and kindliness are not the bases of usury. Nor does a man become a money lender merely because he may upon one or several isolated occasions lend money to a stranger. There must be more than occasional and disconnected loans. There must be a business of money-lending and the word 'business' imports the notion of system, repetition and continuity.

New Law 

 Andhra Pradesh Money Lenders' Bill 2010:

  • Money lenders should maintain a cash book , ledger, register of securities and other such accounts books. 

  • Should not collect more than the interest rates fixed by the government for any local area. 

  • Prohibited from collecting interest more than the principal amount 

  • Restricted from taking any promissory note, acknowledgment or other documents without mentioning the principal.

 Conclusion :
  • Hand Loans should be given by Licensed Money Lender.

  • Hand Loans should be given as per individual re-paying capacity ,annual income of the debtors should taken into considerations, while approving the hand loans.

  • Recovery of Loans should be through "Due Procedure Established by Law" like filling  civil suit in competent court of law. 

  •  Zero tolerance to coercive methods,coercive methods lead to personal humiliation,which will increase the rural suicides. 
  • Rural Money Lenders[licensed] should seek the help of village panchayats by adopting Alternate Reddressal of Disputes[ADR] methods,which is humane way of dealing the disputes.   
 References : 
Author of this informative piece of article is Practicing Advocate based at Hyderabad and worked for A.P Women Commission for some time ,holds First Class Master Degree in International Law[LLM],traveled extensively in rural areas of A.P.

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