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2000 DIGILAW 824 (KAR)

U. P. Venkatesh v. State of Karnataka

2000-12-08

T.S.THAKUR

body2000
ORDER Tirath Singh Thakur, J.—The Petitioners are carrying on business as Commission Agents in the sale and purchase of arecanuts. They have in these petitions assailed the correctness of an order dated 10th of May, 2000 passed by the Licensing Authority, under the Karnataka Moneylenders' Act, 1961, holding that the Petitioners are carrying on business in money lending within the meaning of Section 5 of the said Act, and are therefore liable to pay the additional security deposited in terms of Section 7(2) thereof. 2. The controversy arises in the following circumstances: In connection with their business as Commission Agents, carried on in the APMC Yard, at Shimoga, the Petitioners advance loans to the arecanut growers which is then recovered out of the sale proceeds of the produce supplied by the latter. Apart from getting registered with the Commercial Department the Petitioners have been securing licenses under the Money Lenders' Act, 1961 also. Consequent upon the decision of this Court in Manakchand Motilal Vs. State of Karnataka, ILR (1991) KAR 1928 upholding the constitutional validity of Section 7-A of the Act, the Respondents issued a Circular dated 6th day of September, 1994, setting out guidelines for calculation of the security deposit and interest on the same. Demands for deposit of security deposit were thereafter made from the Commission Agents/Traders, who assailed the validity thereof in Writ Petition No. 3683 of 1994 filed in the name of Shimoga Arecanut Mandi Merchant Association in a representative capacity. The challenge to the Circular proceeded primarily on the ground that the relationship between the Commission Agents/traders and the growers to whom they advance money was that of an 'Agent and Principal' or 'Purchaser and Seller' and not of a 'Lender and Borrower' so as to make the transaction between them a 'money lending transaction' attracting the provisions of Karnataka Money Lenders' Act. It was contended that the Traders were liable neither to obtain a licence nor to pay the Security Deposit demanded. Raveendran J., disposed of the said writ petition holding that the nature of the transaction between the Traders and the Growers depended on the terms and conditions of the transactions, which could not be determined in the writ jurisdiction of this Court. Raveendran J., disposed of the said writ petition holding that the nature of the transaction between the Traders and the Growers depended on the terms and conditions of the transactions, which could not be determined in the writ jurisdiction of this Court. The members of the Association could however file their objections before the Registrar General, and the Licensing Authority explaining the nature of their business and if the Respondents were satisfied that the traders are not money lenders they will not insist upon the latter obtaining licenses and depositing the security. The Court also noticed that the validity of Circular dated 6th of September, 1994 had already been upheld in Karnataka Pawn Brokers Association and Anr. v. State of Karnataka and Ors., Writ Petition Nos. 360611 - 12 of 1994 and connected matters D.D. on 30th of July, 1996. 3. Pursuant to the above direction objections appear to have been filed by the Traders including the Petitioners herein culminating in the issue of an endorsement dated 10th of November, 1997 issued by the Licensing Authority holding that the Petitioners were carrying on Money Lending Business and were therefore liable to not only secure a license but also to make a security deposit. The said endorsement was challenged in Writ Petition Nos. 35987- 29 of 1997 and connected matters, which were disposed of by a single bench of this Court by order dated 26th of August, 1999. This Court held that the licensing Authority had not given any finding on whether or not the amounts advanced by the traders was by way of loans covered by the money lenders' Act or mere advance of funds for supply of goods as Agents or purchasers. The endorsement was accordingly quashed and the matter remitted back to the Licensing Authority for a fresh consideration. The licensing authority has now examined the issue once again and by the impugned endorsement dated 7th March, 2000 concluded that the transactions between the Petitioners and the growers tantamount to money lending within the meaning of the Money Lenders' Act. The Petitioners have assailed the correctness of the said endorsement in the present writ petitions. 4. Mr. Bhat, Counsel appearing for the Petitioners strenuously argued that the Licensing Authority fell in error in holding that the transactions in question tantamount to 'Money Lending'. The Petitioners have assailed the correctness of the said endorsement in the present writ petitions. 4. Mr. Bhat, Counsel appearing for the Petitioners strenuously argued that the Licensing Authority fell in error in holding that the transactions in question tantamount to 'Money Lending'. He submitted that the advances made by the Petitioners to the growers were no more than trade advances which did not amount to carrying on money lending business. He urged that although the Petitioners were charging interest on the amount lent to the growers, yet, the same could not in itself make the transaction a 'Money-Lending' transaction to attract the provisions of the Act. He contended that the fact that the Petitioners had for the previous years, obtained licenses under the Act, did not estop them from challenging the application of the Act on the ground that the Act was inapplicable to them. 5. Before coming into force of the Karnataka Money Lenders' Act, 1961, there were five different enactments in force in different regions of the State relating to Money Lenders and Money Lending. These enactments were not similar in their scope and ambit which necessitated a uniform legislation, on the subject not only to regulate and control, money lending transactions effectively but to protect the innocent debtors. Money Lenders Act, 1961 which replaced the previous enactments now makes comprehensive provisions for issue of licenses to money lenders, conditions of such licenses and forfeiture of security provided by the licensees. It also requires the money lenders to keep accounts and furnish copies. It controls and limits the rate of interest, besides prescribing the procedure to be followed in suits regarding loans advanced by the money lenders. It is unnecessary to refer in detail to the said provisions for the limited question that falls for consideration here is whether, the view taken by the Licensing Authority that the transactions between the Petitioners and the growers amount to money lending transactions is so irrational or perverse as to warrant interference from this Court. 6. Section 5 of the Act, provides that no person shall carry on the business of money lending in the State except in accordance with the terms and conditions of a license and except on payment of security deposit as provided in Section 7A. 6. Section 5 of the Act, provides that no person shall carry on the business of money lending in the State except in accordance with the terms and conditions of a license and except on payment of security deposit as provided in Section 7A. The expression business of money lending has been defined in Section 2 Sub-section (2) thus: business of money-lending" means the business of advancing loans whether or not in connection with or in addition to any other business; "other business. The term "loan" has been defined in Section 2(9) in the following words: "loan" means an advance at interest whether or money or in kind, and includes any transaction which the Court finds in substance to amount to such an advance, but does not include- (a) a deposit of money or other property in a Government Post Office Bank or in a (Karnataka Government Savings Bank) or in any other bank or in a company or with a Co-operative Society; (b) a loan to, or by, or a deposit with, any society or association registered under the (Karnataka) Societies Registration Act, 1960 (Karnataka) Act 17 of 1960); (c) a loan advanced by Government or by any local authority authorised by Government; (d) a loan advanced by a Co-operative Society; (e) an advance made to a subscriber to, or a depositor in, a Provident Fund from the amount standing to his credit in the fund in accordance with the rules of the fund; (f) a loan to or by an insurance company as defined in the Insurance Act, 1938 (Central Act IV of 1938); (h) an advance of not less than three thousand rupees made on the basis of a negotiable instrument as defined in the Negotiable Instruments Act, 1881 (Central Act XXVI of 1881) other than on the basis of a promissory note; (i) except for the purposes of Sections 26 and 28,- (i) a loan to a trader; (ii) a loan to a trader; (iii) a loan by a landlord to his tenant for financing of crops or seasonal finance of not more than fifty rupees per acre of land held by the tenant. 7. It is not in dispute that the Petitioners advance money on payment of interest to the growers who entrust their produce to them for sale in the APMC yard. 7. It is not in dispute that the Petitioners advance money on payment of interest to the growers who entrust their produce to them for sale in the APMC yard. According to the Petitioners, the amount lent is a trade advance and not a loan. That is so because the advance is not a pure and simple money transaction but is related to their business as commission agents. Assuming that to be the correct position it does not in my opinion make any material difference. I say so because the expression "business of money lending" means the business of advancing loans not only as a business in itself, but also if such advances are in connection with any other business that the lender may be carrying on. Just because the loan advanced is related to some other business, will not therefore ipso facto make the transaction anything but money lending within the meaning of the Act. This view gets support from the definition of the word "loan" extracted above, according to which, a loan is nothing but an advance on payment of interest whether in the form of money or in kind and may even include any transaction which the Court may find in substance to be such an advance. The fact that the Petitioners charge interest on the money lent by them is not disputed. In the circumstances unless the loan falls within any one of the exceptions under Clauses (a) to (i) of Section 2(9) of the Act, the same shall be treated to be a loan for purposes of the Act and the business of lending tantamount to business of "money lending". Mr. Bhat did not however make any attempt to bring his case within the exceptions enumerated under Section 2(9) and in my opinion rightly so because the advance given by the Petitioners to the growers does not fall within any one of the said exceptions. The closest one could bring the transactions to any exceptions is Clause (i) of Section 2(9) of the Act, which exempts among others loans to traders or those by landlords to their tenants for financing crops. The closest one could bring the transactions to any exceptions is Clause (i) of Section 2(9) of the Act, which exempts among others loans to traders or those by landlords to their tenants for financing crops. The expression "Trader" has been defined in Section 2(20) of the Act to mean a person who in the regular course of business buys and sells goods or other property, whether moveable or immovable and includes wholesale or retail merchants, Commission Agents, brokers, manufacturers, contractors, and factory owners but does not include artisans or persons who sell their agricultural produce or cattle or buy agricultural produce or cattle for their use. The growers of arecanut do not obviously qualify as traders so as to exempt loans advanced to them from the purview of the Act. In the circumstances therefore, the Licensing Authority was perfectly justified in holding that the business carried on by the Petitioners was money lending business which required them to obtain licenses under the Act, and also to pay the security deposit demanded. 8. These Writ Petitions accordingly fail and are hereby dismissed.