'Be Quick In Reacting In This Matter': Delhi High Court Tells Centre, RBI In Plea For Regulation Of Online Lending Platforms

The Delhi High Court today directed the Reserve Bank of India to come out with a clear stand for regulation of online lending platforms that are allegedly charging exorbitant interest rates from borrowers.

"Be quick in reacting in this matter," a Division Bench of Chief Justice DN Patel and Justice Jyoti Singh told the authority. It also asked the Central Government to sit with RBI and see what steps can be taken to curb the menace.

The Court was hearing a petition filed by one Dharanidhar Karimojji though Advocate Prashant Bhushan. It was alleged that online lending platforms are virtually an extortion racket, charging exorbitant rate of interest from gullible persons. It was alleged that the rate of interest goes up to 500% per annum along with arbitrary upfront processing fees up to 30%.

Accordingly, the plea sought for regulation and control of online digital lenders doing business through mobile applications, etc. by fixing the maximum rate of interest that may be charged by them. It also sought appropriate directions for stopping harassment of borrowers through recovery agents and setting up of grievance redressal mechanism for borrowers in every state.

During the hearing, Bhushan claimed that the RBI has ample powers to regulate these activities under Section 45 of the RBI Act. He stated that though RBI recognized this menace in June 2020, it hasn't done much to prevent the same.

Bhushan referred to a caution notice issued by RBI on 23 Dec 2020 in this regard. He also cited a circular dated 24 June 2020 issued to all scheduled commercial banks and NBFCs regarding loan sourced by them though digital lending platforms.

"RBI is fully aware of the problem. But all they have done is that in January this year they constituted a Committee of 4 internal members and 2 external people to go into these problem and suggest the means to regulate. They gave 3 months to the Committee to file a report. Those 3 months expired in April. But in May 2021 when RBI filed its counter affidavit, they said nothing about the Committee report. Has it come or not, it is not known. Meanwhile, this menace is going on unchecked. Why not taken steps under the powers they already have under Section 45?" Bhushan added.

Responding to these submissions, Advocate Ramesh Babu MR appearing for RBI told the Bench that RBI only regulates banks & NBFCs. "Online lending platforms are different. They do not fall within the purview of RBI. The circulars referred to were issued to Banks & NBFCs, cautioning them not to use such platforms," he submitted.

On being asked as to who is the competent authority, Babu responded, "Government! Union of India should come out with regulations."

However, the Court observed that RBI cannot shirk off its responsibility and it has to take appropriate steps.

"RBI cant merely say we don't have powers...Suppose NBFCs lend money of smaller amounts to needy persons, say less than 1 lakh, and charge 2% interest per day, will you allow? Will you say we have no powers so do whatever you want?" the CJ asked Babu.

While being conscious of the fact that there is no "direct provision" under the RBI Act for regulation of rate of interest for online lending, the CJ asked Babu to seek instructions on the suggestions, if any, made by the Committee.