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Tamil Nadu Money Lenders License

Tamil Nadu Money Lenders License

Tamil Nadu Money Lenders License

The business of money lending prompts for regulation considering the scope for fraudulence in this sector. The Tamil Nadu Money Lenders Act of 1957 was enacted to protect the debtors of Tamil Nadu from unscrupulous money lenders. The Act was later amended and renamed as the Tamil Nadu Act XLI of 1979 (Tamil Nadu) Money-Lenders Act, 1957. This article deals with the procedure for obtaining Tamil Nadu Money Lenders License.

Eligibility for the Business

Money-lending business can be started and operated by an Indian citizen.

Licensing Requirements

As is the case with all major businesses, money-lending endeavours cannot be pursued without possessing a license for this purpose. On the same note, separate licenses are a requirement if the money-lender owns more than one shop or place of business, irrespective of its location.

The license must represent the name of the firm if it is obtained in the firm’s name, and the name of the Karta if in case of a HUF.  If a money-lender is any other association of individuals, the license shall be obtained in the name of each of its members, though registration under the Act isn’t mandated in this case.

Application Requisites

An application for a money lender’s license is to be made in writing to the licensing authority prescribed under this Act. A minor may do the same through a guardian, in which case the guardian will be obligated to comply with the provisions of the Act in a manner which applies to a license holder. The application must be supported with a fee for this purpose, which in no case will exceed a sum of Rs. 100.

The plea for a license will be rejected if the licensing authority finds that the applicant hasn’t been compliant with this Act or its rules or if he/she has committed any willful default under this ambit. Licenses issued under these provisions will expire on the first year of its grant, upon which it must be renewed. However, if the licensing authority fails to intimate the license holder on such renewal, the license previously obtained is constituted as valid.

Note: The expiry or non-renewal of license doesn’t affect the money-lender’s rights of recovery of loans.

Right to Appeal

If any person is aggrieved with an order issued by the licensing authority, he/she may file an appeal to the prescribed authority within one month from the date of communication of such order.

Display of Name

All premises of a money-lending business must include, apart from the name specified in the license, the words “money-lender,” both in English and the regional vernacular.

Rate of Interest

Debtors under this provision could be charged with a rate of interest which doesn’t exceed the rate specified by the Government (which is subject to subsequent changes). The rate of interest fixed by the Government will be correlated to the current bank rates of lending as may be determined by the Reserve Bank of India.

Maintenance of Records

Every money lender is obligated to record and maintain, through direct or indirect means, an account depicting the date of the loan, the sum of the principal of the loan, the rate of interest levied in the loan and particulars of any security taken. Records comprising of these particulars must be maintained separately for each debtor. On the same note, the money-lender should provide the debtor or his agent with a receipt for every sum of money remitted by him/her. The receipt must be signed and stamped by the money-lender. As an alternative, the debtor may issue a passbook. In the absence of a receipt or a passbook, the moneylender is not entitled to any interest for the period of his/her default.

Powers of the Inspector

The Government, or for that matter any authority or Officer empowered by the Act may appoint any person as an Inspector. The Inspector appointed for this purpose may enter the premises of the money-lender on the authorization of the authorities to inspect and if necessary, take into custody the books, accounts, records, files, documents, etc. Such an action can be initiated, but for an obligation, i.e. the inspector must provide a receipt which has a mention of the books, accounts, records, and files removed by him. The documents so removed by the Inspector must be either surrendered back to the inspector or returned to the money-lender.

Apart from this, the Inspector may:

  • Summon any person or demand any documents from a money-lender.
  • Avail the assistance of a police officer in performing the duties under this Act.

Penal Provisions

Listed below is a list of offences and the affiliated penal provisions:

Acceptance of Notes

Money-lenders, whether or not licensed under this Act, is not entitled to accept a note, promise to pay, acknowledgement, power of attorney, bond, security or other documents from any debtor or intending borrower if it doesn’t include the following specifications:

  •  The actual amount of loan.
  •  The rate of interest levied and the supposed date of the principal repayment.

Note: If this provision isn’t adhered with, the defaulter will be imprisoned for a period which may extend to six months and/or a fine which may extend to one thousand rupees.

Disbursal or Receipt of Inappropriate Sum

Money-lenders, whether or not licensed, shall not render an amount to the debtor which is less than the ones specified in the accounts, registers or other documents connected with the loan. On the same note, they shall not be in receipt of an interest which is higher than what is depicted in the records. Any non-compliance with this obligation will result in imprisonment for a period of at least three months, though not for more than six months. The imprisonment could be coupled with a fine, which could be as high as Rs. 1,000. Money-lenders committing this offence will have their licenses cancelled.

Cognizance of Offences

The Courts concerned shall take cognizance of an offence punishable under this Act or its rules on receiving a written complaint from any prescribed authority.

Molestation of Debtor

No default of the debtor entitles the money-lender to be improper on conduct. The regulations of the provisions state that money-lenders who involve in acts of molestation or abetment for the recovery of a loan will be imprisoned for a period of at least three months.

Conduct of Business Without License

Any person who is running a money-lending business without a license or in non-conformity with the conditions of such license will be penalized with a fine which can be as high as Rs. 1,000.

Cancellation or Suspension of License

The following acts of the licensee entitle the concerned authority to cancel or suspend the license issued under the Act:

  • The licensee pursues the business in contravention of any of the provisions of this Act, the relevant rules or the conditions specified in the license.
  • The licensee is convicted for an offence under the relevant provisions.
  • The licensee maintains false accounts or is guilty of molesting any debtor for the recovery of debt.

On the same page, the authority cancelling the license must produce a notice to the licensee which conveys him/her the grounds of such cancellation. However, the licensee must be afforded ample time to correct the offence or to issue a show-cause notice against it.

It may be noted that licenses cancelled or suspended under these provisions don’t qualify for any compensation or refund.

Transfer of License

In the event of the death is the money-lender, the license carried by him/her can be availed by the legal representative of the deceased by issuing to the concerned authority a declaration in the prescribed form.

Jurisdiction of Offences

No provisions under this ambit will be adjudicated by a court which is ranked inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class.

The qualifying courts are vested with the following powers:

  • Determination of the quantum of instalments and the periodical date of the loan payment.
  • Reopening of any transaction or account already availed by the parties (subject to conditions).
  • Reduction of the liability of a debtor in case of any excessive interest.
  • Ordering the reimbursement of any excess remittances.

No Clause for Voidance

No offence of the money-lender would make a contract void. To be precise, no loans or interests will be rendered non-payable on account of any of the money-lender’s offences.

Benefits Restored

No provisions of the Act will affect the benefits of the debtor, which is accorded through:

  • The Tamil Nadu Agriculturalists Relief Act, 1938
  • The Tamil Nadu Debt Relief Act, 1972
  • The Tamil Nadu Indebted Agriculturalists (Temporary Relief) Act, 1976
  • The Tamil Nadu Indebted Persons (temporary Relief Act, 1976)
  • The Tamil Nadu Indebted Agriculturalists and Indebted Persons (Special Provisions) Act, 1976
  • The Tamil Nadu Debt Relief Act, 1976
  • The Tamil Nadu Debt Relief Act, 1978

Powers of the State Government

The State Government is vested with the powers to enact rules in the best interests of the Act. Its area of jurisdiction includes:

  • Matters which are expressly required or allowed by this Act to be prescribed.
  • The form and particulars to be included in a license application.
  • The terms and conditions for the grant of license.
  • The forms wherein the relevant books, accounts and documents shall be recorded, maintained or utilized.
  • The procedure to be followed and the powers of the authorities responsible in enacting functions, holding enquiries and hearing appeals under this Act.