Posts tagged ‘Interest’


This is an interesting piece of legislation about which the general public does not have much awareness. The Act has a noble intention of prohibiting the charging of exorbitant interest by financiers and money lenders. An exorbitant interest is an interest at a rate more than what is fixed under section 28 of the Karnataka money lenders Act 1961. This amount to 15 % in case of secured loans and 18% in case of unsecured loans. Hence anybody charging interest more than the above rate is said to charging exorbitant interest.

As per the Act whoever charges exorbitant interest on any loan advanced by him shall be punishable with imprisonment for a term of which may extend to 3 years and also with a fine which may extend to Rupees 30,000/- .
A debtor may deposit the money due in respect of a loan received by him  from any person together with interest thereon into the court along with the petition to record that amount deposited is in full or part satisfaction of the loan including the interest thereon. The Court may after inquiry, pass order recording the satisfaction of the loan and interest therefore in full or in part as the case may be. The Court may, on a petition filed by the debtor for settlement of loan including the interest therefor, pass an order for the adjustment of the interest, if any, paid by the debtor, over and above the rate of interest fixed by the State Government towards the loan.

Where a debtor or any member of his family commits suicide and if it is shown that immediately prior to such suicide the debtor or any member of his family was subjected to molestation by any person, the person who has advanced loan shall, unless the contrary is proved, be deemed to have abetted the commission of such suicide

Karnataka Money Lending Act 1961 and Rules

The Karnataka Money Lender’s Act, 1961 & Rules, 1965 prescribes fair rules of business for money lenders. According to this Act, no person shall carryon the business of money lending in Karnataka except by holding a license and by payment of a security deposit made under the said Act.Every Money lender shall file an application for license to the Assistant Registrar of the area. Along with the application, the money lender need to pay the license fee which may come to about Rs 5,000/- and Rs 250/- for each of the other places where the business will be carried on. The Assistant registrar will forward the application to the Registrar of the area, who will after necessary enquiry grant the license. A license is valid for a term of 5 years.

The money lenders are also required to pay a security deposit which may range from Rs 5000/- to Rs 50,000/-, at the time of applying for the license. The Registrar is entitled to forfeit the above said security deposit if (a)the money lender carries on the business in contravention of any provisions of the  act or the rules (b) is convicted of an offence under the Act, (c) maintains false accounts. If a money lenders does not hold a valid license at the time of advancing a loan, he is no entitled for a decree from a civil court in his favor. Every money lender shall keep and maintain a cash book and ledger in Kannada or in English. Further every money lender shall deliver to the debtor within 30 days from the date on which the loan is made a statement showing the details of the loan. If the money lender has given a pass book to the debtor, then it is not necessary to furnish the above statement.

Every money lender is supposed to deliver every year to each of his debtors a legible statement of such debtor’s accounts, signed by the money lender of any amount that may be outstanding against such debtor. No such statement is required to be delivered to a debtor, if he is supplied by the money lender, with a passbook which shall be in the prescribed form, and shall contain an up to date account of the transactions with the debtor. The money lender shall deliver a copy of the statement to the Assistant registrar.No court will order a decree, on account of the interest of a loan, for a sum more than the principal of the said loan. Even if there is an agreement between the money lender and the debtor, the decree for interest can never be more than the principal amount of the loan.

Every money lender shall exhibit his name with the word money lender, over his shop or place of business. Further no money lender shall take any promissory note, acknowledgement, bond or other writing which does not state the actual amount of the loan. No money lender shall execute any instrument in which blanks are left to be filled after execution. Whoever molests or harass or troubles a debtor for the recovery of a debt due by him to a creditor shall on conviction be punished with imprisonment which may extend to six months or fine which may extend to five thousand rupees or with both.