The Bombay High Court has ruled that the applicability of the bar on suits by unlicensed money-lenders under Section 13 of the Maharashtra Money Lending (Regulation) Act, 2014, cannot be determined at the preliminary stage of an Order VII Rule 11 CPC application.
In short, the Court clarified that whether a plaintiff is a “money lender” and whether the transaction constitutes a “loan” under the said 2014 Act are triable issues that require the examination of detailed evidence, especially when the suit is based on negotiable instruments like dishonoured cheques and promissory notes, which may fall under the exceptions to the definition of ‘loan’.
The Court held that the plaint could not be rejected at the threshold, and concluded that the question of whether the plaintiff is a money lender under the said 2014 Act, thereby attracting the bar under Section 13, cannot be decided at the stage of an Order VII Rule 11 application and warrants a trial.
A Single Judge Bench of Justice Gauri Godse observed that the plaintiff’s suit is for the recovery of a liquidated sum of money, founded on dishonoured cheques and letters from the defendant that unconditionally admitted the acceptance of the loan and the liability to repay.
The Bench heavily relied on the decision of Deepak Raheja vs. Tikamdas & Associates [Commercial Appeal (L) No. 15455 of 2023 in COMSS No. 311 of 2020], and noted that an ‘advance’ of any sum exceeding Rs. 3 Lakhs made on the basis of a negotiable instrument (other than a promissory note) is excluded from the definition of ‘loan’ under Section 2(13)(j) of the said 2014 Act.
The sine qua non for the application of Section 13(1) is the existence of a ‘loan’ as defined by the Act. Without a ‘loan’, there is no bar on a court passing a decree, added the Bench.
The Bench observed that the onus of establishing, even prima facie, that the plaintiff carries on the business of money-lending rests on the defendant. It was noted that merely advancing money to people does not ipso facto make a party a money lender; they must fall within the specific parameters of the said Act.
At the same time, the Bench explained that the allegation of engaging in the business of money-lending without a license is a question of fact that can only be dispelled by leading detailed evidence. Such an issue requires an examination of evidence and cannot be decided in a summary manner through an application under Order VII Rule 11 of the CPC.
Lastly, referring to the Supreme Court’s decision in Dahiben Vs Arvindbhai Bhanushali [(2020) 7 SCC 366], the Bench emphasized that the power to reject a plaint under Order VII Rule 11 is a drastic measure that terminates a civil action at the threshold and must be exercised strictly in accordance with the enumerated conditions.
Briefly, the Plaintiff, engaged in the business of builder finance, had advanced loans to the defendant starting from 2011-2012. The initial loan of approximately Rs. 48 Crores was subsequently increased to approximately Rs. 510 Crores, with interest rates as high as 36% per annum. In pursuance thereto, the defendant issued post-dated cheques and demand promissory notes for repayment.
When two cheques, for Rs. 68.92 Crores and Rs. 499.92 Crores respectively, were dishonoured upon presentation due to ‘insufficient funds’, the plaintiff filed a criminal complaint under Section 138 of the Negotiable Instruments Act. Opposing the same, the defendant filed an Interim Application under Order VII Rule 11(d) of the Civil Procedure Code (CPC) for the rejection of the plaint. The primary ground for this application was that the suit is barred by Section 13 of the Maharashtra Money Lending (Regulation) Act, 2014, as the plaintiff was allegedly engaged in the business of money-lending without a valid license.
Appearances:
Senior Advocate Gaurav Joshi, along with Advocates Gaurav Mehta, Chaitanya D. Mehta, and Sonali Aggarwal, for the Plaintiff
Senior Advocate Navroz Seervai and Prateek Sakseria, along with Advocates Nishit Dhruva, Yash Dhruva, Niyati Mechant, and Harsh Sheth, for the Defendant
