Money lending to friends at excessive rates
Pavani Bayyana
(Querist) 24 December 2012
This query is : Resolved
Esteemed members,
I am an individual and had lent some money to one of my friend at a rate of 3% per month. The high rate has been opted because, he was in need of money on a emergency basis and to serve his need I have borrowed from another person at a rate of 2.5% from one of my friend, keeping 0.5% as my margin.
I would like to know whether charging an abnormal interest rate of 3% per month(i.e. 36% per annum) would amount to any violations of any of the money lending acts or any other acts or constitution etc.
I hope Money lending act is not applicable to me as I am not a money lender and also I am not lending money on a regular basis and this was only one of a rare lending transaction by me.
Appreciate if you quote relevant provisions of law for better understanding.
RAJU O.F.,
(Expert) 26 December 2012
Legally you cannot lend money as described above. But illegally you may do whatever you want; but law may not come to help you on necessity.
Pavani Bayyana
(Querist) 26 December 2012
Dear Raju,
Can you please let me know under what law or provisions, lending of the money at excessive rate is illegal.
V R SHROFF
(Expert) 26 December 2012
Repeated , already replied.
ur retaining 0.5% is justified as u run risk , in case ur frd cannot return [ say if dead in accident, unable to repay & u held liable]
So though illegal act, ur parts seems to be justified.
In mutuialk friendship, one do anything.
When matter goes to court, u r no more frd, u r enemy, and court won't help u.
Pavani Bayyana
(Querist) 26 December 2012
Thanks for ur response shroffji,
I have taken a undated cheque from the friend for the principal and an estimated amount for three months of interest. I would also like to know why the transaction is illegal. Also, will there be any change in the answer if the amount lent is out of my own money ? If I got a problem when I deposit the cheque, will I be able to file a case under NI act for the cheque bounce or does the aspect of excessive interest rate will create any problem ?
Raj Kumar Makkad
(Expert) 03 January 2013
Your similar query has already been replied.
Pavani Bayyana
(Querist) 04 January 2013
No body is answering why this will be illegal. Please quote relevant legal provisions, rather than giving generic replies. The below question has not been answered as at
if the amount lent is out of my own money at 3% per month, will that voilate any legal provisions ? If I got a problem when I deposit the cheque, will I be able to file a case under NI act for the cheque bounce or does the aspect of excessive interest rate will create any problem
Guest
(Expert) 04 January 2013
Dear Pavan,
About your statement, "Please quote relevant legal provisions, RATHER THAN GIVING GENERIC REPLIES," just clarify, can you command regular and full scale free advice from any of the experts just to enable you promote your illegal business, when you are doing a business of money lending by charging hefty rate of interest?
Would you like to reply the following queries:
1) What is your real business?
2) Are you a licensed money lender?
3) Have you registered your business entity under the Shops & Establishments Act of your State?
4) Have you registered your entity with and taken permission from the RBI to do this money lending business, as a Non-Banking Financial Company?
5) Are you paying income tax on the hefty interest amount, as you are earning through your money lending business?
6) When you are making hefty profit of 36% on your capital, can't you afford to hire services of a local lawyer to have his advice about the legality or illegality of your money business and how to run that legally?
YOU SHOULD NOT FORGET, common people who really have some legal problem are tried to be helped by the experts here by providing important clues to solve their problems.
YOU SHOULD ALSO NOT FORGET that neither experts on this forum are paid servants of anyone trying to command help, nor experts should be expected to provide help in promoting illegal business of any one, who is already earning a huge profit out of his business.
Raj Kumar Makkad
(Expert) 04 January 2013
I fully endorse the strong advice of Ld. Dhingra G and want to make clarify to the author that e are not paid servants of him to follow his dictation.
Guest
(Expert) 04 January 2013
Dear Pavan,
Instead of terming my reply as vague, you could well have taken the cues from my queries to what extent your business is legal or illegal.
When you have not given any such detail about your business in your original question, as was required to saisfy my queries, how you could expect appropriate advice from the experts?
About your statement, "I am just helping only to my friend," nobody can say that you are HELPING your friends when you are charging interest even more than three times the prevailing bank interest rates. Help could only be known had you not been charging any interest or would have charged a nominal interest.
On one hand you say your borrowers as friends, while you are charging interest at 36% from them. What type of friendship is this?
About your statement on "sharing their valuable knowledge" as at CA Club India, the question arises, why you have not asked your question at CA Club India and if asked and got replies, why did not you share such knowledge here also?
Not sharing our knowledge merely with you with your incomplete information, does not mean that we are not sharing our knowledge. You can see contribution of anyone over here, all are sharing their knowledge, but only with needy people who are facing any type of problems, of course, not with businessmen who try to misuse our knowledge just to augment their own business or try to harm someone else.
About your statement, "People like YOU are intending to develop business even out these non-profit web-based forums by means of giving vague replies," your own statement is contradictory.
Just make your point clear, how the experts can develop their business if they give vague replies here, which is visible and open to one and all? I just ask another question to you, how much business you have given to any one of experts here? Moreover, why anyone would like to give business to anyone of us if we give only vague replies.
Another vital question arises, when you have made entry just 10 days back by registering yourself on 24th December 2012 in the LawyersClubIndia, how you could guess that the experts here are developing their business by giving vague replies without going through the contributions of each member here?
Further, had anyone of us suggested you to hire service of anyone of us? Even in my own reply, I hinted you to hire service of some LOCAL lawyer, as you can see in point (6) of my queries, where I stated, "to hire services of a local lawyer to have his advice about the legality or illegality of your money business and how to run that legally."
In nutshell, your own allegations against us are quite vague, rather reply of anyone.
Better be aware, you can't force any of the experts to reply in your own terms to help you to expand your illegal business. It is up to you to hire or not any local lawyer, if you violate law, may be a petty matter or a very serious violation. But, you should not expect help from anyone, if you violate the law with some ulterior motive, specifically in the name of helping friends. To be frank, you are not helping friends, rather picking their pockets in the name of help.
Pavani Bayyana
(Querist) 04 January 2013
Dear Dhingra,
Below is extract from my original message:
I am an individual and had lent some money to one of my friend at a rate of 3% per month. The high rate has been opted because, he was in need of money on a emergency basis and to serve his need I have borrowed from another person at a rate of 2.5% from one of my friend, keeping 0.5% as my margin.
I would like to know whether charging an abnormal interest rate of 3% per month(i.e. 36% per annum) would amount to any violations of any of the money lending acts or any other acts or constitution etc.
I hope Money lending act is not applicable to me as I am not a money lender and also I am not lending money on a regular basis and this was only one of a rare lending transaction by me.
I think you did not see this message and hence you are under the impression that I am doing business. Hope the above has made you understood that I was helping my friend and answers all your v.replies again.
Guest
(Expert) 04 January 2013
Any question is seen on the legality of the act, not on layman's viewpoint.
In this act, had you been so concerned about friendship, you could have become surety of your friend, rather than trying to earn profit out of the transaction. With such two-sided transactions, both you and the other fellow lending @2.5% have indulged in illegal business of money lending on individual basis, the one charging interest at the rate of 2.5% and the other at the rate of 3%. Had there been a question only about the transaction with the other fellow, who lent you @2.5% pm, only he could have been termed as involved in illegal business.
Moreover, when you, yourself posted question under the category of "Business Law", where remains the question of individual and friendly transaction. Naturally, that clearly reveals your intention just to run your money lending business by borrowing money at lower rates and lendibng at higher rates.
