Lack of a licence will debar a moneylender from using legal ways to secure repayment, said Justice P R Borkar of the Aurangabad bench of the high court last week. The Negotiable Instruments Acta law that bounced cheque victims use to recover their money makes it clear that the debt had to be legally enforceable. Section 138 of the Negotiable Instruments Act states that a debt or other liability means a legally enforceable debt or other liability. The money lent out by an unlicensed businessman will not amount to a debt or liability and so the legal provisions of filing a criminal complaint against the person whose cheque has bounced will not apply to such transactions.

The high court upheld the acquittal of Purushottam Kawane, a resident of Ahmednagar , in a bounced cheque case filed against him by one Anil Kataria. Kataria, on evidence before the local trial magistrate, had turned out to be an unlicensed moneylender. In 2004, Kawane borrowed Rs 4 lakh from Kataria, but when the former issued a cheque of Rs 2 lakh, it bounced. In 2005, Kataria initiated criminal proceedings under Section 138 of the Negotiable Instruments Act.

Three years later, the magistrate acquitted Kawane and Kataria knocked on the high courts door to allow him to appeal. The high court referred to the provisions of a pre-Independence law, Bombay Moneylenders Act, 1946. Section 5 of this Act lays down that no moneylender shall carry on business of money lending, except in the area for which he has been granted a licence. Kataria never said he had a money-lending licence and Kawanes lawyer also added that he had filed bounced cheque proceedings against 10 others for close to Rs 80 lakh he had lent.

The law also bars a court from passing an order in favour of a moneylender in any suit unless the court is satisfied that at the time when the loan was advanced, the moneylender held a valid licence. If the court finds that the moneylender did not hold a valid licence, it shall dismiss the suit. In other words, an unlicenced money lender cannot loan or legally recover.

In fact, the unlicensed money lender, doing unauthorised business, faces up to one year in jail and Rs 500 fine for the first offence and two years imprisonment and Rs 5,000 fine for the second offence.

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