Will Regulate 'Shylockian' Lenders : Supreme Court Raises Concerns Over Unlicensed Money Lending Business

The Supreme Court on Tuesday (July 23) highlighted the growing menace of unlicensed money lending leading to severe consequences for borrowers, including financial ruin and even suicide.

The Court observed that the practice of lending money on interest without proper licensing and securing the loans with cheques or title deeds is not different from the business of money lending. However, under the Punjab Registration of Money Lenders Act, 1938, such activities would not be considered as business of money lending unless they involve continuous transactions of a similar nature. To evade the law, such persons advance loans only intermittently, the Court noted.

The Court compared such lenders to the character Shylock in Shakespeare's play Merchant of Venice, who advances a loan to the protagonist with “a pound of flesh” as security.

“We are coming across cases where such so called friendly advances are in crores. We are mainly peeved and pained by instances where ordinary laymen take such loans and are at last driven to streets or driven to commit suicide, on account of lenders entertaining Shylockian attitudes. We will regulate such instances and rescue the hapless who happen to borrow loans and then are doomed in debts.”

Further, the court highlighted the potential for significant tax evasion in cases involving large sums of money, such as Rs. 50 lakhs or more.

A bench of Justice CT Ravikumar and Justice Sanjay Karol, in an SLP seeking quashing of summons to the petitioner in a cheque dishonour case, suo moto impleaded the Union and Delhi governments as parties to the proceedings observing –

“We may add that the Shylockian attitude sans shame continues in such instances and more often that not, despite repaying the amount actually advanced, the borrower is constrained to pay sometimes double the amount or more, towards interest. To fall outside the purview of money lending business laws, prudently (or cunningly?) some such lenders avoid continued transaction and give huge loans only for interest, intermittently.”

In the present case, the complainant claimed that he advanced various friendly loans to the petitioner amounting to Rs. 85 lakhs on various dates through modes of RTGS and cash between January 2018 and February 2019.

The Supreme Court referred to a decision from over four decades ago in Fatehchand Himmatlal & Ors. v. State of Maharashtra [(1977) 2 SCC 670], where a Constitution Bench observed the detrimental effects of unregulated money lending, especially on rural indigents and urban workers. The court noted that while money lending could support commercial activities, it often led to the exploitation of borrowers, resulting in economic stagnation and severe repercussions for the borrowing community.

Due to these concerns, the Supreme Court suo motu impleaded the Union of India and the Government of the National Capital Territory (NCT) of Delhi, represented by its Chief Secretary, as parties to the proceedings.

The court issued notice, returnable on August 23, 2024. The court directed that its interim order, which prevented the Trial Court from passing a final order in the trial, continue till the next hearing.

Case no. – Special Leave to Appeal (Crl.) No. 5485/2024

Case Title – Raj Kumar Santoshi v. Prashant Malik