Sitting On Business License Renewal Applications For Long Can Pave Way For Corrupt Practices: Kerala High Court

The Kerala High Court has expressed concern over the tendency of state authorities to sit on business renewal license applications, which in turn disrupts business activities and may pave way for corruption.

Justice Bechu Kurian Thomas while quashing the FIR registered against M/S Aditya Finance, a hire-purchase business entity regulated under the Kerala Money Lenders Act, 1958 said,

"A licensee of a running business establishment who had applied for renewal of his license, cannot be asked to wait indefinitely until the authority takes a decision. If the licensee has to stop his running business until a decision is taken, it will disrupt the business. This can also pave they way for corrupt practices and will be giving a premium to the ineptitude of the licensing authority".

The FIR registered under Section 420 IPC, Section 18A of the KML Act, and Section 3 r/w Section 9 of the Kerala Prohibition of Charging of Exorbitant Interest Act, 2012 alleged that accused were conducting their business without any legal authorisation and were cheating the borrowers.

Advocate Pearson S. Fernandez on behalf of the petitioner-accused argued that the organization had obtained a licence under the KML Act, from the year 2009-10, which was renewed every year till 2015-16, without a break, and that on the date of the search being conducted the, petitioners' application for renewal of licence for the year 2014-15 was pending consideration.

The Court observed that the KML Act contains a provision for 'deemed license' during the expiry period. It said, 

"A perusal of the statute reveals that even if the renewal application was not submitted before expiry of the licence, by virtue of the proviso to Section 3(1) of the KML Act, petitioners had the right to conduct the business from 29.04.2014. Even otherwise, sub-clause (4A) of Section 4 takes care of instances when a licensee fails to apply before the expiry of the licence. In such an instance, the licensing authority is vested with the power to issue the renewed licence with a retrospective date. Thus, in view of Section 4(4A), which grants power to the licencing authority to grant licence with retrospective effect, it can be concluded that even if on 04.06.2014, the petitioners did not possess the licence, by virtue of having submitted the application for renewal of the licence for the period 2014-15 and the subsequent grant of licence for the period i.e. from 01.04.2014 till 31.03.2015....petitioners were undoubtedly entitled to conduct money lending business as per KML Act, on the date of registration of the FIR. Since petitioners were legally entitled to conduct business on the said date, the allegation of conducting business of money lending without authority cannot arise".

The Court added that corruption is what the Statute sought to prevent by virtue of the proviso to Section 3(1) and the deeming license under S.4(7) apart from the retrospective operation of license under S.4A of the KML Act.

As regards the offence alleged against the petitioners under Section 18A of the KML Act, which dealt with certain acts of pawnbrokers being made punishable, the Court observed that the Investigation Officer was under a misconception that the vehicle finance provided by the petitioners amounts to a 'pawn'.

"The vehicle is used and possessed by the registered owner of the vehicle, who is only a hirer and the de jure ownership of the vehicle vests with the financier. The concepts of pawn and pawnbroker do not arise in the instant case, and therefore Section 18A of the Act also does not apply", it was observed. 

The Court also rejected the contention that the ingredients of Section 420 IPC could be made out in the instant case since there was no specific allegation in the FIR, other than a vague statement that the borrowers were cheated.

The Court also could not discern that the petitioner had charged from any person, exorbitant interest, either in violation of the KML Act or contravening the provisions of the Interest Act. It was further noted that the allegation that there were blank cheques and other signed papers seized from the petitioner was of no consequence as an offence. 

The Court relied on the observations made in Yohannan M.M. & Anr. v. State of Kerala (2019), and stated that, the observations in the said case indicated that if a complaint is received, the police will have to act provided they are satisfied that an offence has been committed. It added that as a corollary, in the absence of any complaint, police cannot meddle with a legally run business. 

"In the instant case, there is not only absence of any complaint from any person regarding the conduct of business by the petitioners, but by virtue of operation of the KML Act, petitioners were entitled to conduct the business without any interference as they were in legal possession of a valid licence on the date of search". 

The Court thus concluded that based on the instant factual circumstances, the crime registered against the petitioners could not make out any of the offences alleged, and the allegations in the First Information Report even if they are taken at their face value and accepted in its entirety, also do not prima facie constitute any offence, nor do they disclose a cognizable offence, justifying an investigation by the police.

Director General of Prosecution T. Asif Ali and Public Prosecutor M.K. Pushpalatha appeared for respondents.

Case Title: P.T. Prasannakumar & Ors. v. State of Kerala & Ors. 

Citation: 2022 LiveLaw (Ker) 648

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