benami transaction
Querist :
Anonymous
(Querist) 28 April 2010
This query is : Resolved
what provision of sahukara act (money lending act) prohibit a person to give personal loan etc. what is the right proceedure of given of personal loan by individual and what penalties if not follow the proceedure of law. (on both person giving loan and accepting loan)
Raj Kumar Makkad
(Expert) 28 April 2010
Your heading of query and contents of query have no inter relation.Both these are separate things and situations, however, I am furnishing hereunder the provisions of Money Lending Act:
The Current Legal Framework
Introduction
4.1 The Constitution of India has conferred the power to legislate on matters relating to money lending and moneylenders to the States. Most of them have enacted the laws (Annex-III). Many of these are comprehensive legislations providing detailed and stringent provisions for regulation and supervision of the money lending business. These legislations contain provisions aimed at protecting the borrowers from malpractices of the moneylenders. In Andhra Pradesh, there are two laws governing moneylenders, applicable to different parts of the State. The Andhra Pradesh (Telangana Area) Moneylenders Act, 1349 F (Act No. V of 1349 F) is applicable to the whole of the Telangana area, whereas the Andhra Pradesh (Andhra Region Scheduled Areas) Moneylenders Regulation, 1960 (A. P. Regulation No.1 of 1960) is applicable to the Andhra region. Efforts are being made by the State government to come up with a single Act that covers the whole State. Orissa also has two laws, which are made applicable in different parts. The Orissa (Scheduled Areas) Moneylenders' Regulation, 1967 has been made applicable to the Scheduled areas of the State, whereas the Orissa Moneylenders' Act, 1939 is applicable to rest of the State.
4.2 Some States have enacted separate legislations governing the business of pawn-broking, while others have incorporated separate provisions for pawnbrokers within the money lending legislation itself. For the purposes of this report, we have focused on the legislations dealing with money lending, leaving aside the laws governing pawn broking.
4.3 The history and object of enacting the money lending legislations can be inferred from the observations made by some High Courts. Thus, in Sk. Abdul Sattar v. Sitaram Sah and Anr., the Bihar High Court observed as under :
'Before embarking upon this question, it is relevant to state at the outset that the Act was brought on the Statute book to consolidate and amend the law relating to regulation of money-lending transactions and to grant relief to the debtors in the State of Bihar.”
Similarly, in the case of J.D. Nichani and Anr., v. State of Madras, the Madras High Court, while dealing with the challenge to the constitutional validity of certain provisions of the Madras Moneylenders Act, 1957, made observations to the effect that the Madras legislation had been enacted in order to cure the defects that were noticed in enforcing the provisions of the Section 51A of the City Police Act, 1888 which, in turn, was introduced in order to put an end to the malpractices followed by a special class of moneylenders known as pawnbrokers, and for the purpose of framing a legislation to regulate and control the business of moneylenders in the then State of Madras. In a case relating to the Bombay Money Lender's Act, 1946 the Bombay High Court held that the Act was a piece of social legislation. In yet another case in Bihar, it was held that the Act was a measure of beneficial legislation intended to liberate agricultural debtors from shackles of the ever-continuing indebtedness.
Salient features of the Money Lending Legislations
4.4. An examination of the money lending legislations of 22 States shows that the provisions are generally similar. The salient features are:
Requirement of registration/license for carrying on the business of money lending within a State/a portion of the State;
Duties of the moneylenders with respect to maintaining and providing statement of accounts to the debtors;
Penalties for carrying on business without licence and for intimidating the debtors or interfering with their day-to-day activities, including the cognizability of such offences;
Maximum rates of interest that can be charged;
Matters that the Courts are required/empowered to decide in suits filed by moneylenders;
Applicability to companies engaged in the money lending business. However, some States in exercise of their general exemption powers, have granted exemptions to companies from the applicability of the legislations.
Exemption to loans from a trader to another trader, loans by banks, co-operative societies, financial institutions, etc.
Certain common features found in majority of the legislations are outlined in the following paragraphs.
Object and Coverage
4.5 The object of legislation pertaining to money lending is to regulate and control the business of moneylenders. The various Moneylenders Acts define a moneylender as a person whose main or subsidiary occupation is the business of advancing and realising loans. Banks and Co-operative Societies are excluded from the purview of the Acts of many States. Generally, the laws have been made applicable to individuals, firms, association of individuals and companies. However, Nagaland and Andhra Pradesh (as applicable to the Andhra Region Scheduled Areas) have excluded companies from the purview of their respective enactments.
Registration/Licensing
4.6 All the moneylending legislations provide that moneylenders are required to register and obtain a licence. All the State legislations, except those of Punjab and the National Capital Territory of Delhi, also provide for penalties if any person carries on business without registration/licence. The punishments range from a low fine of Rs.200 to imprisonment for a period of 3 years and maximum fine of Rs 50,000. Kerala prescribes a minimum punishment of imprisonment for 6 months. Some States provide for enhanced punishments for second and subsequent offences.
4.7 Kerala and Karnataka provide for the payment of a security deposit by the moneylender at the time of applying for the licence, which is liable to be forfeited in the event of his contravening any of the provisions of the respective Acts/Rules, falsification of accounts, and commission of certain offences. Almost all laws, except of Kerala, Nagaland and Andhra Pradesh (Andhra Region Scheduled Areas) Moneylenders Regulation, 1960, also impose a bar on suits filed by unregistered moneylenders.
Loans in kind, goods and materials
4.8 Most State Acts include the advance of both money and kind within the definition of the term 'loan'. The AP (Andhra Region Scheduled Areas) Moneylenders Regulation, 1960 defines a “loan” (section 2(10)) as advance of money or articles, goods or materials for interest and includes any transaction, which the Court finds in substance to amount to such an advance. In Uttar Pradesh, the sale of goods on credit and hire purchase are not covered. In Kerala and Bombay, a loan advanced in the regular course of business by a trader legitimately carrying on any business has been exempted from the definition of 'loan'. In Karnataka, loans from a landlord to a tenant for financing of crops or seasonal finance of not more than fifty rupees per acre of land held by the tenant have been exempted from the definition of the term 'loan'. Under the Orissa Moneylenders' Act, 1939, supply of goods (i) on khata carrying simple interest upto six and a quarter per cent per annum and (ii) on credit, are not treated as loans.
Keeping, Filing and Furnishing of Accounts
4.9 Almost all the States have provisions requiring moneylenders to keep statement of accounts in the form and manner prescribed in the Rules. Moneylenders are also required in Karnataka, Uttar Pradesh, Kerala, Maharashtra, Nagaland, Madhya Pradesh and Rajasthan to file statement of accounts with the registering/licensing authorities and generally they are required to do so annually.
Another requirement is to furnish a statement of accounts to the borrowers as prescribed under the Rules. Delhi, Punjab and Haryana do not contain provisions for the keeping of accounts, filing statement of accounts/returns with registering authorities and furnishing of account details to the borrowers. Similarly, even though the Andhra Pradesh (Telangana Area) Moneylenders Act, 1349 F provides for keeping of accounts, it does not contain any provision requiring the lenders to file statements of accounts/returns to the registering authorities. In Bihar, the filing of accounts with registering authorities has been restricted to the accounts of scheduled castes and scheduled tribes only. Karnataka, Uttar Pradesh, Kerala, Maharashtra, Bengal, Orissa, Bihar, Andhra Pradesh, Rajasthan and Nagaland enable the State authorities to inspect the books of accounts and related documents. Some States even have powers of search and seizure of books of accounts and documents relating to money lending. Most of the States also prescribe penalties for the falsification of accounts/entry of wrong sums in accounts.
Interest Rates
4.10 Interest rates chargeable by moneylenders are either fixed by Statute or the Statutes empower the respective Governments to fix the interest rate by issue of notification from time to time. The same forms a bench-mark for the Courts to determine whether the interest rates charged are excessive in the given facts and circumstances of a case. The Courts are also empowered to examine whether or not interest rates charged on a loan transaction are excessive under a central legislation, namely, the Usurious Loans Act, 1918, wherein guidelines for determining what is ‘excessive’ have been provided in terms of Section 3(2) of the said Act. Some States have provisions empowering the Courts to limit the amount of interest to a sum less than the principal of the loan while passing a decree and also for reopening of transactions.
Molestation
4.11 Karnataka, Kerala, U.P., Tamil Nadu, Bombay and Bengal have provisions defining an offence of ‘molestation’ and prescribing penalty for the commission or abetment to commit the same. The term ‘molestation’ has been defined to include use of violence/intimidation against the debtor or family members/loitering near the house or work place/doing of any act calculated to annoy the debtor, etc.
Reopening of transactions by Court
4.12 With the exception of Kerala, Punjab, Delhi, Haryana and AP (Telangana Area) all other States examined by the Group permit the Courts to reopen the transactions pertaining to the loan, settle accounts between the parties and reduce the amount charged to the debtor in respect of any excessive interest.
Trade credit
4.13 Loans from one trader to another (trade credit) have been exempted, expressly or impliedly in Kerala, Andhra Pradesh (Telangana Area), Orissa, Karnataka, Rajasthan, Tamil Nadu, Maharashtra, Gujarat, Nagaland, Haryana, Punjab and Delhi. Even agricultural input credit appears to have been excluded from the purview of the legislations of the States of Karnataka, Maharashtra, Gujarat, Kerala and Madhya Pradesh.
Special features
4.14 Apart from the general provisions common to the legislations of all the States, there are certain special features unique to some of them, which are noteworthy.
Commercial lending
4.15 The Bengal Moneylenders Act, 1940 has a provision defining “commercial loan” (Section 2(4)) to mean a loan advanced to any person to be used by such person solely for the purposes of any business relating to trade, commerce, industry, mining, planting, insurance, transport, banking or entertainment, or to the occupation of wharfinger, warehouseman or contractor or any other venture of a mercantile nature, whether as proprietor or principal or agent or guarantor. Interest rate permitted is higher for such loans. The Andhra Pradesh (Telangana Area) Moneylenders Act, 1349 F has a provision (Section 2(9)) defining the meaning of “trader” and read with the provisions of Section 2(4)(g), providing for exemption to certain categories of loans, which include loan by a trader to another trader. The Kerala Act, while defining “loan”, has excluded an advance made by a trader bona fide carrying on business, other than money lending, if such loan is advanced in the regular course of such business.
Penalty for taking salami, batta, gadiana
4.16 The Bihar Moneylenders Act, 1974 contains a provision providing for penalty on moneylenders who takes from a debtor at the time of advancing loans or deducts out of the principal of such loan any salami, batta, gadiana or other extraction of a similar nature.
Composition of Offences
4.17 Certain legislations provide for compounding some of the offences made punishable under the Moneylenders legislations.
Exemptions
4.18 Generally all the legislations define a moneylender to be a person advancing loans. Exemptions from the applicability of the provisions of the money lending laws are of various types (i) exemption provided under the definition of moneylender(Rajasthan Moneylenders Act), (ii) exemption provided under the definition of loan (generally in many legislations); (iii) provisions expressly exempting persons / entities from the provisions of the legislations (Madhya Pradesh Moneylenders Act, 1934); (iv) Provisions empowering Government to exempt persons / entities from the provisions of the legislations; (iv) limited exemption is granted under certain legislations (Bombay Moneylenders Act, 1946 – applicable to Maharashtra and Gujarat) to banks, companies, unincorporated bodies etc.
Debt collectors
4.19 The AP (Andhra Region Scheduled Areas) Moneylenders Regulation, 1960 has a provision for employing debt collectors by moneylenders after obtaining authorisation from the authority in terms of section 11. The Nagaland Moneylenders Act, 2005 prohibits employment of persons by moneylenders for the purpose of demanding or recovering any loan due to him unless such person is in possession of a certificate (issued by the designated authority of the State) authorising him to act as a debt collector.
Money lending to be carried on as a “business”
4.20 The money lending laws of many States specifically cover those who carry on money lending as a business.
Definition of “bank” and exemption to advances made by banks
4.21 The term “bank” has been defined in certain laws to mean a company carrying on the business of banking and registered under the enactment relating to companies. As regards Public Sector Banks, the above mentioned Acts are silent.
Loans by Cheque
4.22 In UP there is a provision requiring that loans above Rs 1,000 are to be evidenced by a cheque.
Board for Resolution of Disputes
4.23 In Bihar Chapter IV deals with conciliation proceedings for resolving disputes pertaining to loans exceeding Rs 100 between the moneylender and the debtor, irrespective of the pendency of a suit for recovery of the loan before a court. In terms of these provisions, the State government can refer the dispute to a Board constituted by it consisting of three members – a chairman who has to be a person agreed upon by the parties or an officer not below the rank of a Sub-Deputy Collector, and one member each representing the parties to the dispute. The decision of the Board is final and cannot be called in question before any Court.
Security Deposits
4.24 Kerala and Karnataka require registered moneylenders to keep security deposits with the Government. The law provides a detailed table specifying the amount of money required to be deposited by a moneylender, and it is linked to the amount of money lent in a year. The security deposits specified under the Kerala Moneylenders Act, 1958 range from a minimum of five thousand rupees to a maximum of two lakh rupees. The security deposits specified under the Karnataka Moneylenders Act, 1961 range from a minimum of five thousand rupees to a maximum of fifty thousand rupees.
Audit by Chartered Accountants
4.25 The Kerala Moneylenders Act, 1958, is the only Act, which provides that the accounts of every moneylender be audited at least once in every year by a person who is a chartered accountant and the audit report submitted to the specified authority.
The Rule of “Damdupat”
4.26 Some of the State laws contain a provision providing for the maximum amount of interest recoverable on loans made by moneylenders, incorporating the rule of damdupat. The rule of damdupat is a branch of the Hindu law of debt. According to this rule, the amount of interest recoverable at any one time cannot exceed the principal. The rule was applied not only to unsecured loans, but to loans secured by a pledge of movable property and those secured by a mortgage of immovable property. The Rajasthan Moneylenders Act even has got a provision expressly stating that in cases where the moneylender has realised from the debtor an amount equal to or more than twice the amount of the principal, the debtor shall stand discharged and requiring the moneylender to efund the amount so realised in excess of twice the amount of the loan to the debtor.
Usurious Loans Act, 1918
4.27 The Usurious Loans Act, 1918 is also currently applicable to transactions relating to money lending. The Usurious Loans Act, 1918 (ULA) was enacted with the object of preventing the Civil Courts being used for the purpose of enforcing harsh and unconscionable loans carrying interest at usurious rates. The provisions of ULA enable the Courts to reopen transactions by way of money or grain loans in cases where the Court is satisfied (a) that the interest or other return is excessive and (b) that the transaction is substantially unfair and after investigation of the circumstances, both attendant and antecedent, to revise the transaction between the parties and, if necessary, to reduce the amount payable to such sum as the Court, having regard to the risk and all circumstances of the case, may decide to be reasonable. ULA has been made applicable to suits for (a) recovery of a loan, (b) enforcement of any security taken or any agreement, made in respect of any loan and (c) redemption of any security given in respect of any loan. The State Government has been empowered to exempt, by way of notification in Official Gazette, any area, class of transactions or class of persons from the applicability of ULA. ULA provides guidelines to the Court for examining whether a particular rate of interest can be considered to be excessive or not and also for considering whether a transaction is substantially unfair or not. The ULA is applicable to all suits as mentioned above irrespective of the parties involved in the disputes. Therefore, the Act is also applicable to suits in which a moneylender is a party. In view of the provisions of section 21A of the Banking Regulation Act, 1949, the provisions of the ULA are not applicable to banks. Some States like Madhya Pradesh and Maharashtra have made amendments to ULA specifically providing that charging of compound interest in excess of a particular percentage shall be deemed to be excessive. The State of Tamil Nadu has made an amendment to the effect that if compound interest is charged in case of loans to agriculturists, then the Court shall presume that the interest is excessive. Even if there is no prohibition under ULA against charging of compound interest, the Courts have a duty of examining the transaction as a whole and ascertaining whether in a given case, the transaction is unfair or the rate of interest is usurious. The Bengal Moneylenders Act, 1940 has repealed the Usurious Loans Act, 1918 in respect of money lending transactions falling within the purview of the Bengal Moneylenders Act.
Interest Act, 1978
4.28 Though not a part of the overall body of laws relating to money lending, there is one more Act, viz, the Interest Act, 1978 which can also be applied by Courts while granting interest in suits. The Act is a Central Act and it was enacted with a view to consolidate and amend the law relating to allowing of interest in certain cases. Its provisions empower the Court to allow interest in any proceeding for the recovery of any debt or damages or in any proceedings in which a claim for interest is made in respect of any debt or damages already paid to the person entitled to the debt or damages at a rate not exceeding the 'current rate of interest' for the period specified in the provisions.
